Telecom Commission approves high base price of Rs 11,485 cr per Mhz for 700-Mhz frequency; no decision taken on proposed standard spectrum usage charges of 4.5%
In a big blow to major mobile players, Telecom Commission, the highest policy-making body of the Department of Telecommunications (DoT), has approved Telecom Regulatory Authority of India-recommended base price of Rs 11,485 crore per Mhz across India for 700-Mhz frequency as well as auction of all available spectrum.
If all available spectrum is sold during the auction, expected to happen by September this year, the government could earn Rs 5.36 lakh crore.
Operators have termed the base price for 700-Mhz band as “highly expensive”. Analysts have predicted lukewarm response to the auction because of high base price. This frequency is being auctioned for the first time in India and is considered an efficient band for 4G/LTE services.
In its meeting on Saturday, the Commission also liberalised payment norms for the service providers after auction of spectrum.
Under the new norms, operators who get spectrum in higher frequency bands - above 1-Ghz like 1,800-Mhz, 2,100-Mhz, 2,300-Mhz - will have to make 50 per cent upfront payment and the rest in 10 years after a two-year moratorium. Earlier, operators had to pay 33 per cent as upfront payment after winning spectrum in the auction process.
For spectrum below 1-Ghz band such as 700-Mhz, 800-Mhz and 900-Mhz, companies will have to pay 25 per cent upfront and the remaining in 10 years after a two-year moratorium.
This, however, will have to be placed before the Cabinet for a final approval.
According to estimates in the Budget for 2016-17, the government would earn Rs 55,000 crore (Rs 550 billion) from the spectrum auction in the current financial year.
Hemant Joshi, partner, Deloitte Haskins & Sells LLP, “For the next spectrum auctions, the government is offering spectrum in bands like 700-Mhz and 2,500-Mhz for the first time, apart from 800-Mhz, 900-Mhz, 1,800-Mhz, 2,100-Mhz and 2,300-Mhz bands. TRAI has recommended a base price of Rs 11,485 crore per Mhz for the 700-Mhz premium band which is almost four times the price of 1,800-Mhz band (Rs 2,873 crore for pan-India 1 Mhz spectrum). Hence, an operator will have to pay Rs 57,425 crore ($8 billion) for a pan-India 5 Mhz block of 700-Mhz spectrum,” he said.
The demand for the spectrum is unlikely to be high as the operators have still not used the spectrum from last auction. With the debt of Rs 3.5 lakh crore ($53 billion), the telecom Industry is highly indebted and operators might not bid aggressively and may bid only for circles where they are in need of spectrum, Joshi added.
There was no decision on spectrum usage charges in the meeting. DoT will seek the opinion of Attorney General on the issue before taking a decision.
DoT had proposed to cut spectrum usage charges (SUC) at flat rate of 4.5 per cent. The policy change, if implemented, will help incumbent operators including Bharti Airtel, Vodafone and Idea Cellular, which pay a much higher SUC rate compared with the proposed one.
Currently, SUC is calculated on weighted average formula and operators pay a SUC of three to eight per cent of their adjusted gross revenues to the government. The SUC charges also depend on when the spectrum was acquired or whether it was allotted administratively.
This proposal, however, will also mean some revenue loss for the government.
Cellular Operators Association of India (COAI) has been demanding a uniform SUC rate of three per cent and a gradual one per cent charge.
SUC was earlier linked to quantum of spectrum holding of an operator in range of three to eight per cent of their adjusted gross revenue (AGR). After evaluating impact on the exchequer, government in January 2014 decided to cap SUC at five per cent on spectrum that was to be procured for future auction. The SUC collection was at 4.8 per cent level at that time.
Existing telecom operators were asked to pay the weighted average of their existing SUC (on old rate of three to eight per cent), and five per cent if they acquire new spectrum.
Trai has already recommended a uniform rate of 3 per cent SUC. However, the recommendation faced stiff opposition from Reliance Jio, which holds pan-India broadband wireless access (BWA) spectrum on which only 1 per cent SUC is imposed.
The government had then asked all BWA holders, including Aircel and Airtel to continue paying 1 per cent on BWA. But they were asked to pay 5 per cent of AGR on all spectrum they will purchase in future.
The 700-Mhz band is considered to be good for offering broadband and 4G services. It is in demand for long-term evolution (LTE) deployment because of its efficiency and high penetration inside buildings. As it has a lower frequency, it provides wider coverage, reducing the number of towers needed to set up the LTE network and cutting down capital expenditure.
But leading telecom players such as Bharti Airtel and Vodafone have expressed concern over the high reserve price of spectrum suggested by Trai.
Many analysts have also said the auction would not generate a huge interest as telecom players are already hard pressed for funds in a competitive sector.
Operators have been saying that the ecosystem for 700-Mhz band - low-cost handsets, network equipment - was not ready yet. According to estimates, the cost of delivering mobile services in the 700-MHz band is about 70 per cent cheaper than 2,100-MHz.
Largest-ever spectrum sale
- Auction of all available spectrum as per Trai recommendations approved
- Govt could earn Rs 5.36 lakh crore from total spectrum sale
- Companies winning spectrum in higher frequency bands - above 1-Ghz like 1,800-Mhz, 2,100-Mhz, 2,300-Mhz - to make 50 per cent upfront payment and rest in 10 years after a 2-year moratorium
- In earlier auctions, companies were given option to make 33 per cent upfront payment
- For spectrum below 1-Ghz band such as 700-Mhz, 800-Mhz and 900-Mhz, companies will require to pay 25% upfront and rest in 10 years after a 2-year moratorium
Challenge for 4G-friendly 700-Mhz band
- A company interested in buying spectrum in 700-Mhz band will have to shell out a minimum of Rs 57,425 crore for a pan-India block of 5 Mhz
- This band alone has the potential to fetch bids of over Rs 4 lakh crore.
- Cost of delivering mobile services in 700-Mhz band 70% lower than 2,100-Mhz band, used for providing 3G services
- Leading operators seek to defer sale of 700-MHz spectrum, saying ecosystem for providing services in this band not yet developed
