The Telecom Commission has granted its approval to auctioning of all available spectrum across frequencies at reserve prices as recommended by the Telecom Regulatory Authority of India. Cabinet approval is awaited.
This includes spectrum in the 700, 800, 900, 1800, 2100, 2300, and 2500 MHz bands. It is estimated that the government would earn Rs. 5.36 lakh crore (USD 80 billion) from the spectrum auction in the current financial year.
Even as the conditions for sub-1 GHz bands are unchanged, the government has increased the upfront payment for spectrum in 1800, 2100, 2300, and 2500 MHz bands from 33 to 50 percent. Harmonization of spectrum will add another 200 MHz to the 2142-MHz, making it the highest-ever quantum of airwaves put up for auction.
With the operators reeling under a debt of Rs. 3.5 lakh crore, the reserve price of Rs. 11,485 crore per MHz for the 700-MHz band, where the ecosystem for providing services is not yet developed, is unrealistic. This equates to more than 20 times the annual free cash flow of the entire mobile industry. With an expected contribution of Rs. 4 lakh crore from this band, there is a likely risk that the auction may not get a good response; it may even fail or, at a minimum, have serious limitations on investment capability in next-generation networks.
A uniform spectrum usage charges (SUC) rate of 3 percent of adjusted gross revenue, graduating to one percent, would not do enough to offset such high spectrum prices.
The government may be well advised to reconsider the auction reserve prices. An auction needs to reflect local market conditions, allowing competition to determine fair prices.
The backdrop of a likely scenario of Telenor exiting the Indian market as its operating losses widen, Bharti Airtel, Idea Cellular, and Reliance Communications reporting flattish voice revenue and sluggish data volume growth in the January-March 2016 period, and anticipating a year-on-year slowdown in data revenue growth to sub-50 percent levels cannot be ignored.