DoT panel questions TRAI's spectrum price cut suggestion

NEW DELHI: A telecom department (DoT) panel has raised objections over the sector regulator’s suggestions of steep cuts in the floor price for spectrum auctions as well as a uniform spectrum usage charge, pouring cold water on the expectations of a debt-laden industry, which had hoped that the recommendations would be accepted. The committee, set up by DoT to review Telecom Regulatory Authority of India’s ( Trai’s) recommendations on spectrum pricing, differed over the string of assumptions, including the pricing formula, used by the regulator for arriving at the reduced rates.


The panel also suggested a review of the pricing of spectrum in the 900 MHz band as that was linked to price in the 1800 MHz band. It also sought the regulator’s views on a pan-India price for airwaves in the 900 MHz band, and not just the three circles of Mumbai, Delhi and Kolkata for which Trai had done so.

The Trai had on September 9 suggested a 37% cut in the base price for spectrum in the 1800 MHz band and a 60% cut in the reserve price of airwaves in the 900 MHz spectrum for three circles where licences are coming up for renewal next year.

Most of the mobile phone operators had abstained from the last two rounds of auctions, citing exorbitant prices. Analysts say Trai’s proposed cut in base prices would have made the auctions more economically viable for the industry, which has been hit by intense competition and regulatory uncertainty.

The suggested flat spectrum usage charge (SUC) would also have brought down annual payouts for the financially strained sector.

The panel also suggested auctioning frequencies in the 800 MHz band, rather than withhold spectrum in this band and explore it as an extended-GSM band, as had been proposed by Trai. Especially, in the wake of the Supreme Court judgement, which mandated that all spectrum freed due to the quashing of 122 licences be put up for sale and not be withheld.

The panel, however, agreed with the Trai’s recommendation of not allowing any operator to withhold any spectrum during licence renewals, implying full spectrum refarming. This would deal a blow to top mobile phone operators such as Bharti Airtel and Vodafone India who own airwaves in this much sought-after band in some circles where their permits are coming up for renewal late next year.

The panel’s report, seen by ET, will be taken up by the Telecom Commission (TC) on October 3, which is then likely to refer the observations back to the regulator for their views. The TC is the highest decision-making body in the DoT.

Concurring with the industry view, the regulator had said that the reserve price in the previously conducted auctions was exorbitantly high and the reason why operators bought spectrum was because it was distress purchase.

The panel, however, said that the fact that, apart from the quashed licensees, some incremental spectrum was bought by certain other operators showed that the spectrum sold was not technically only distress purchase. The DoT has highlighted that the newly recommended pan-India floor price of Rs 7,480 crore for 5 MHz in the 1800 MHz band is less than half the price of Rs 18,110 crore first recommended by the regulator in 2012.

The DoT raised doubts over the pricing formula adopted by Trai. It said that the regulator’s methodology, which computed the quantum of spectrum in terms of the number of base stations to be deployed and the minutes of usage, didn’t appear to be wholly correct and needed to be clarified. It has also asked whether the regulator included the premium on the spectrum, which will be liberalised.

“The present value of spectrum doesn’t seem to reflect the value of liberalised spectrum as its potential for use is much more than 2G over the next 20 years,” the panel said. The committee has further expressed practical inability to implement the regulator’s recommendation to charge a flat spectrum usage charge (SUC), irrespective of the quantum of spectrum held. Currently, operators pay a cascading charge between 3% and 8% of adjusted gross revenue depending on the amount of bandwidth they hold.

The flat SUC “cannot be implemented because revenue arising out of auctioned and not auctioned spectrum cannot be segregated”, the panel opined. It said that at an SUC of 5% of AGR, the government stood to lose Rs 300 crore annually. Trai had recommended a flat usage charge on the premise that in future all spectrum will be allotted through auctions. However, the department has pointed out that it will take some time before that becomes a reality.

“Perhaps, when all service providers either hold all their spectrum through auctions or have converted their spectrum into liberalised spectrum, a flat spectrum usage fee can be charged,” the panel said in its report.

On the issue of trading of spectrum, the department has asked the regulator to give a detailed framework of how to trade spectrum, determine the price, the quantum and the legal framework governing it. However, DoT should take a final decision on when to announce such a policy, the panel said. Trai had recommended that DoT should announce the trading policy before holding any auctions.