 "Spectrum")
TRAI seems to have paid little attention to the bigger picture before fixing the valuation for 700 MHz spectrum. TRAI has recommended auction of 700 MHz spectrum for the first time at a whopping reserve price of Rs 11,485 crore per MHz.
The only consideration seems to be to raise as much money as possible for the government. Through the present round of auction the government intends to raise Rs 5-5.6 lakh crore which is nearly five times the amount it raised in 2015 which stood at Rs 1.1 lakh crore. By auctioning 700 MHz spectrum at the reserve price, government intends to raise well over Rs 4 lakh crore.
Before we comment on the pricing issue and the probability of success, a word on what 700 MHz means for the telecom sector, especially in the 4G space. 700 MHz is a much sought-after band for long-term evolution (LTE) deployment around the world due to its efficiency and higher penetration inside buildings. The lower frequency provides wider coverage, which reduces the number of towers required, significantly cutting capital expenditure. The cost of delivering mobile services is approximately 70 per cent cheaper than that at 2,100 MHz.
But the significant cost of the spectrum itself will prove prohibitive. Here are five reasons why this round of auction, especially for 700 MHz will not meet the government’s expectations.
1) The reserve price of 700 MHz is not only high, it is exorbitant says Nitin Sone, Director, Fitch Rating (Read here). The price is nearly four times that of 1,800 MHz, the band Reliance Jio is working on. It is nearly twice the price set for 800 MHZ, though it has similar propagation characteristic as 700 MHz. This is a very high price to pay in an industry where technology is changing fast.
2) The 700 MHz is a spectrum is useful, says Soni, but the abscence of it will not threaten the survival of the industry. In the previous year, the government collected over Rs 1 lakh crore via auction process as the spectrum offered was in use and hence the survival of the companies depended on it. There is no such urgency in bidding for 700 MHz.
3) What will the telecom players do with the spectrum if there are no devices that will be able to work in the same frequency? In their submission to TRAI, telecom majors Bharti Airtel, Idea Cellular and Reliance Jio opposed the auction till a device ecosystem was in place.
4) Almost all the telecom players are saddled with debt which has been accumulated to purchase spectrum from earlier auctions. In a scenario where rates are likely to come down with the launch of Reliance Jio, few players will have the muscle power to bid for costlier spectrum. TRAI has been increasing the reserve price of spectrum every year without taking into consideration the financial health of the sector. Arm twisting the players is unlikely to help in the long run.
5) Most of the players have been recently accused by the telecom minister of not investing enough in telecom infrastructure. Fines have been imposed on call drops which are now prompting the players to divert their attention in improving service standards. Further, the entire sector is waiting to realign their offerings based on what Reliance has to offer. With the focus on the fast changing scenario on the ground there could be very little interest in investing in 700 MHz spectrum, without which they can survive.
Telecom sector has increasing been used by respective finance ministers to bridge their fiscal deficit gap. But there is a limit to which you can milk a cow.
