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TRAI spectrum base price proposals exceed expectations

Indian regulator TRAI has proposed that the base prices in the country’s upcoming 1800MHz spectrum auctions should be set 10% higher than in the previous round of bidding.

The proposed base price for spectrum in the 1800MHz band is INR2138 crore (around US$346.68 million), and INR3004 crore (US$487.1) for the 900MHz band. Both operators and analysts have objected to the proposals, saying that they are likely to harm the debt-laden industry.

The 900MHZ is critical for the country’s leading carriers - such as Vodafone India, Idea Cellular and Reliance Communications – since it is the same spectrum that they currently use to operate and for which their licences will expire next year.

Therefore, if they do not reacquire this bandwidth they may be forced to shut down some or all of their operations in several areas, rendering vast investments worthless. TRAI has justified its proposals by citing increasing demand for data services, which are driving revenue for telecom companies.

The regulator also urged the government to not conduct auctions unless more bandwidth across various frequencies and across India is available. Chairman Rahul Khullar said in a statement "The government must auction airwaves in the 900, 800, 1800 and 2100MHz bands together as this will reduce the madness to buy airwaves."

Trai has proposed that airwaves in both 800MHz, typically used for CDMA services, and 2100MHz, used for 3G, be auctioned together with those in the 900MHz and 1800MHz bands. It suggested exploring the creation of an extended GSM band by utilising part of 800MHz as an extension of 900MHz frequency used for GSM, and asked the government to come out with a clear roadmap for auctioning spectrum in the 700MHz band before conducting any sale.

The industry and experts welcomed the suggestion on auctioning more bandwidth, but were disappointed by the suggestion on price. The Telecom Commission will make the final decision on pricing, after considering TRAI’s suggestions.

"We were expecting that the regulator would price airwaves in 1800MHz at 85% of the last auction price, but TRAI further increased it by 10%," said Rajan Mathews, director-general of the Cellular Operators Association of India, which represents GSM-based operators. The recommended price of 900MHz is also much higher than what it should be, he said.

Reliance Communications (RCOM), Vodafone and Idea could see as much as 28%, 19% and 15% of their respective revenue getting wiped out if they fail to win back bandwidth, based on data from TRAI. RCom may be forced to rejig operations or even close down in four telecom circles if it fails to win back spectrum, and Vodafone and Idea face the same threat in two circles each. In such a case, their customers in those regions would have to switch to other operators.

While RCOM said it will defend its turf vigorously, Idea has played down the importance of the sale, noting that it acquired back-up bandwidth in the previous auctions. Vodafone has admitted that it may have to shut shop in some circles if it can't win back the airwaves.

The regulator too has recognised the importance of this in its recommendations. "In the 900 MHz band, only the spectrum held by [operators] is available for the auction. These licensees will have to win back this spectrum to ensure business continuity in the licensed service area; if they don't win, it places the large investment made in the LSAs in jeopardy. The continuity of services to millions of customers is also at stake."

TRAI suggested that the government free up more spectrum by taking back part of the airwaves given to state-run BSNL, swapping 3G spectrum with defence forces, and finally in notifying the extended GSM band, which would free up a lot of spectrum for 900MHz auction.

 

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