After several rounds of consultation with stakeholders, the Telecom Regulatory Authority of India (TRAI) has released its recommendations on the ?Auction of Spectrum?. 

Prior to this, the Supreme Court, in its verdict on the 2G spectrum case, had requested the regulator to frame recommendations pertaining to the grant of licence and allocation of spectrum in the 2G band across all circles. In so far, TRAI has already sent its guidelines on the grant of licenses to the Department of Telecommunications (DoT). These guidelines, too, will be sent to DoT for its assessment.

TRAI?s recommendations on this subject are aimed at defining the process by which spectrum ought to be auctioned.

Broadly, the regulator?s recommendations include:

  • Excess spectrum of 2×2.4 MHz ought to be taken back from Mahanagar Telephone Nigam Limited: This is on grounds that both incumbents, Bharat Sanchar Nigam limited (BSNL) and MTNL are underutilising the spectrum they hold, based on their declining user numbers.
  • Spectrum which is available in at least 75 per cent of the total number of districts in the licensed service area ought to be allocated via an auction.
  • Spectrum which is auctioned ought to be liberalised. This implies that the spectrum can be used to deploy any kind of telecom service on any technology platform.
  • Spectrum in the 800 MHz and the 900 MHz bands ought to be refarmed latest by the date by which an operator is required to renew their license. In the meantime, spectrum in the 900 MHz band, being held by operators, ought to be replaced by spectrum in the 1800 MHz band. This ought to be priced at the prevailing rate at the time of refarming.
  • The government ought to explore the possibility of refarming the spectrum in the 900 MHz band as soon as possible.
  • Keeping in mind that the application for renewal of licenses must be made at least 30 months before the license expires, TRAI recommends that spectrum in the 900 MHz band be auctioned at least 18 months in advance. In this context, TRAI recommends that the auction of spectrum in the 900 MHz band ought to be carried out in the first half of 2013.
  • In case spectrum in the 1800 MHz band is insufficient for carrying out refarming, government agencies ought to vacate spectrum in the 1800 MHz band.
  • TRAI has said that DoT ought to initiate the process of allocating spectrum from the 1900 MHZ band to refarm spectrum in the 800 MHz band.
  • TRAI has recommended DoT begin the interference study. Spectrum in the 800 MHz band ought to be progressively refarmed at the time of renewal of licences of such operators.
  • Meanwhile, the auction of spectrum in the 700 MHz band could be carried out in 2014. This is in anticipation of the ecosystem for LTE in the 700 MHz developing at a reasonable pace, so as to be able to realise the full market value of the spectrum.
  • All future auctions ought to be carried out in the following manner:

a) The auction ought to be conducted using the Simultaneous Multiple Round Auction (SMRA) format.

b) Keeping in mind that spectrum in the 1800 MHz and the 800 MHz bands will be auctioned shortly after these recommendations are issued, this ought to be carried out in a single-stage format.

c) All upcoming and future auctions ought to be open to all companies with a CMTS, UAS or unified licence and those eligible for obtaining a unified licence. However, companies holding spectrum that exceeds the prescribed limit will be barred from the auction.

d) In case a new company emerges as the winner in the auction, TRAI recommends that the entity will be required to opt for a unified licence at the state or national level.

e) All auctions will put on offer at least 5 MHz of spectrum, except where the spectrum available is less than 5 MHz.

f) Spectrum shall be offered in blocks of 1.25 MHz each

g) For the auction expected shortly after these guidelines are issued, the amount of spectrum to be offered will follow the aforementioned format.

h) The final bid price for spectrum in a pre-decided band that emerges at the end of one auction shall be considered as the base price for the next auction.

i) The limit on the amount of spectrum that can be acquired shall be 50 per cent of the spectrum assigned in each band in the respective service area and 25 per cent of the total spectrum assigned in all bands put together in each service area.

  • Post the auction and refarming of spectrum in the 1800 MHz band, of the remaining, one block of 2×1.25 MHz of spectrum may be allocated to companies holding 4.4 MHz of spectrum in the service area at the price thrown up by the auction for that service area.
  • DoT ought to consult with the Ministry of Law on whether the aforementioned is appropriate for conducting an auction, keeping in mind the Supreme Court?s order and existing licence conditions.
  • Operators ought to be permitted to convert existing spectrum in the 1800 MHz band into liberalised spectrum on payment of the auction determined amount. Thereafter, they will be granted spectrum rights for 20 years and will be allowed to adjust the price paid by them for the existing spectrum on a pro-rata basis for the balance period of the existing license.
  • To create a uniformly liberalised environment with a level playing field, the government ought to consider developing a suitable incentive package for operators under the NTP 2012.
  • The auction of spectrum in the 800 MHz and 1800 MHz bands ought to be held through two separate auction processes and in quick succession.
  • TRAI recommends the following schedule for deferred payment of the bid amount by the successful bidders:

a) For spectrum in the 1800 MHz, 2100 MHz and the 2300 MHZ bands, the initial payment will amount to 33 per cent of the bid amount and the moratorium period is two years. Also, the operator can pay the balance amount over 10 years

b) Spectrum in the 700 MHz, 800 MHz and the 900 MHz will entail an initial payment of 25 per cent of the bid amount, with a moratorium period of two years. The balance can be paid over 10 years.

  • In addition to the aforementioned point, TRAI has recommended that the annual installments for deferred payments are to be securitized. The net present value of the bid amount is safeguarded by imposing a suitable rate of interest, which is to be decided by DoT in consultation with the Reserve Bank of India and/or the Ministry of Finance.
  • TRAI recommends that the sequence of the spectrum auction could be as follows:

(a) 5 MHz of 1800 MHz band- This auction would be to establish the market value of spectrum. This could be carried out in 2012-13.

(b) The allocation of additional 1.25 MHz of spectrum to the holders of 4.4 MHz in 1800 MHz bands is subject to the legal opinion.

(c) The auction of spectrum in the 800 MHz band should also be done in the current financial year.

(d) Auction of spectrum in the 900 MHz band should be conducted in the first half of 2013-14, preferably in the first quarter so that there is adequate time for deployment as and when 900 MHz spectrum is available by November, 2014.

(e) Balance Spectrum in 1800 MHz band- This should be done in the first half of 2013-14

(f) Auction of Spectrum in 2100 MHz band – This should also be carried out in the second half of 2013-14.

(g) Auction of available spectrum in 700 MHz band- This should be carried out in the first half of financial year 2014-15.

(h) Auction of additional spectrum in 2300 MHz band- This should be carried out in the second half of financial year 2014-15.

  • TRAI recommends that the DoT should choose engage an auctioneer for three years so as to conduct the auctions as soon as possible.
  • Mortgage of spectrum may be permitted by spectrum holders to a registered Indian financial institution against borrowings. The mortgage will be subject to the condition that in the event of default of the liability, the spectrum shall be auctioned by the financial institution under the supervision of DoT and all proceeds in excess of the liability shall be remitted to the government.
  • DoT must discuss with the Ministry of Finance and the Reserve Bank of India the most appropriate methods to remove all the road blocks in the framework for borrowings by the telecom sector against the spectrum assigned to them.
  • In this context, TRAI recommends that its recommendations pertaining to the operators? rural roll-out obligations, as specified in November 2011, ought to be implemented. The measures ought to be applicable to all spectrum holders.
  • The Authority recommends that

a) Licensees who have acquired spectrum only through the auctions conducted here onwards shall be levied spectrum usage charge only at the rate of 1 per cent of the adjusted gross revenue (AGR) spectrum.

b) Licensees who have a mix of spectrum assigned administratively and through an auction and licensees who have been assigned spectrum only through administrative process shall be levied the spectrum usage charges at the rate applicable on the administratively assigned spectrum and on the entire AGR.

c) In case the company has been assigned spectrum through administrative processes, it has to pay the current auction determined price for the spectrum. Thereafter, it will be entitled to the payment of spectrum usage charges at the rate of 1 per cent of the AGR.

  • To calculate the licence fee and the spectrum usage charges, a minimum AGR ought to be considered, which cannot be less than 5 per cent of the bid amount.
  • Spectrum will be valid for 20 years.
  • In this context, TRAI has recommended that spectrum trading ought to be permitted between operators who have obtained spectrum through the auction process or having paid the auction determined price for the spectrum held by them, only for the limited purpose of frequency configuration.

INDUSTRY VIEWS

As expected, the telecom industry is up in arms against TRAI?s guidelines. Largely, the industry is of the opinion that the recommendations, if accepted by DoT, will cripple the industry, especially the operators who face licence cancellation as per the Supreme Court?s verdict in the 2G case.

tele.net takes a look at the viewpoints of various operators and industry associations?

Cellular Operators Association of India (COAI) and the Association of Unified Telecom Service Providers of India (AUSPI)

COAI and AUSPI have vehemently expressed their concern and disapproval of these recommendations and termed them as being arbitrary, regressive and inconsistent. The industry associations have added that the telecom space was looking forward to a reasonable spectrum reserve price from TRAI in the light of the government?s own articulated policy directions on affordability, rural penetration, etc.

Further, COAI and AUSPI have said that the Ministry and DoT has clearly stated that the primary objective of the NTP 2012 is proliferation of affordable, reliable and secure telecom and broadband services in furthering the national development agenda while enhancing equity and inclusiveness.

Vodafone India

Vodafone India is deeply concerned to read TRAI?s recommendations.

We believe that several of these recommendations are retrograde and if accepted, will do irreparable harm to the industry. It will hamper the ability to connect the unconnected and goes against the objectives of National Telecom Policy of ensuring improved rural teledensity and right to broadband.

We will share our detailed observations in due course.

Kotak Institutional Equities

TRAI?s recommendations on spectrum pricing clearly illustrate that progressive is not equal to practical. TRAI has issued recommendations on spectrum-related issues, which sound progressive on paper but do not take into the account the practicalities of the financial health of the sector, and the stage of evolution of the Indian telecom market. The increased cost of the recommendations, if accepted, will either be borne by the industry (which is not in a position to bear it) or by the consumer who is struggling with inflation. Either way, the recommendations are sure to dent investor sentiment in the sector.