Spectrum Auctions: TRAI Chairman Claims Success

by CXOtoday News Desk    Oct 14, 2016

Telecom Spectrum

Opinions differ on whether the spectrum auctions initiated by the ruling NDA government at the centre has been success or a failure. While the government says it is quite happy over the fact that it generated bids worth over Rs.65,000 crore, there are those who claim that going with high reserve prices might have reduced the attractiveness of the spectrum that went up on sale, especially in the wake of Reliance Jio’s no-holds-barred price war for data transfer. 

After the recently concluded telecom spectrum auctions, TRAI Chairman, RS Sharma has termed the event as a success, despite the regulatory body finding no takers for the 700 MHz spectrum. He mentioned that the telcos bought what they needed, and that TRAI would look at re-pricing the the particular spectrum band should the government (Department of Telecommunications) look to resell the price band again in the future.

Experts point to the fact that the latest round of auctions need to be seen in the backdrop of the 2015 round where government raised over Rs.1.10 Lac Crore with only 11% of spectrum lying unsold across the 800-2100 MHz bands. Of course, it also mattered that the said auction spelt survival for some of the telcos whose 20-year licenses were ending.

What also makes the 700 MHZ  band a valuable asset for the telcos now, is that this is known to be particularly good for 4G services, an area the companies are in stiff competition currently, with Reliance Jio being the primary disruptor in the industry. He said,“They (auctions) were very successful. Telcos have bought whatever they needed to buy,” while also adding, “That excuse (not enough spectrum) is gone. A lot of spectrum was sold, apart from that in the 700 MHz band.” He said this in light of the quality of services currently being rendered in the market.

Would it have made sense had the government factored earlier auction outcomes into their calculations? At a mathematical level, take a look at this calculation - India has 22 telecom circles and spectrum was offered across seven frequency bands ranging from 700 - 2500 MHz. This means we could have had 126 circle-band combinations for sale. If all these had been sold at the reserve price, government would have made roughly Rs.5.6 trillion. Would this mean that government suffered a notional loss of Rs.4.94 Lac Crores? At least, that’s how it would seem from the eyes of Mr. Vinod Rai, former Comptroller and Auditor General (CAG) of India, who raised the 1.76 Lac Crore notional loss issues some years ago. 

With regards to the coveted band of spectrum, the 700 MHz, which went unbid in this round of auctions, RS Sharma was quick to admit that the prices were indeed high (reserve price of Rs 11,475-crore), but the issue will be looked at in the future. He mentioned with regards to the pricing, “We had priced it based on various factors at that point in time. And if they (DoT) want to auction it again, they will send a reference back to us, and we will look into the pricing again based on the factors prevalent at that point in time,” where he pointed out that the pricing was below the 900 MHz designated price, in some circles.

However, the October 1 auction had 2,354 MHz of spectrum of airwaves to be auctioned off, through the online process. Based on the reserve price, Rs 5.6 lakh-crore was the original estimate of revenue from the sale, but due to no sale in the 700 MHz category, the amount realized is said to be much lesser. The reserve price for the coveted band was Rs 11,475 crore, but with these developments will ensure a future price cut, which analysts at America Merrill Lynch and HSBC expect to be atleast 15-20% in the nest round of auctions. 

In fact, a report published in The Mint (read it here), questions whether the process could actually be described as an auction, given that only only 11 of the 126-circle-band combination received offers and bidding. In the remaining 115 combinations, sale happened at the reserve price itself. In other words, there were only 11 frequency bands across the country where one can rest assured that the winning bid was greater than the reserve price.

The article goes on to state that the auction mechanism itself was quite sound and well-designed but rendered ‘moot by the absolute lack of buyer interest in the auction process.’ It argues that barring Mumbai 1800 MHz, none of the other combinations saw intense bidding. The result - it fetched a 33% higher price than the reserve price.  

One of the prime concerns in the industry right now also, is that of the Reliance Jio disruption, which is about their approach to pricing vis-a-vis the services on offer. From the September 5 launch, Reliance Jio had launched the offer of free voice calls till December 31 this year, which is known to put extra load on the existing network, for connecting calls and maintaining them.

However, without the adequate levels of inter-connectivity points, call drops and connectivity issues are becoming a major bone of contention in the industry, especially between TRAI and the other telcos. The issue however, seems to be a top agenda for TRAI, as Sharma said, “Yes, we have received a letter from some of the operators that Reliance Jio is resorting to predatory pricing. We are examining the issue and asked for Reliance Jio’s comments.”

He was also in the mentioning that there were complaints against Reliance Jio’s services, where they had promised a lifetime of free calls, which is against the rules, other than the violation of the 90-day window for promotional offers, such as free data, which Reliance promises to users, till December 31 this year. As per TRAI, the complaints have been received, and Reliance’s responses are awaited.