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BW Businessworld

The Spectrum Conundrum

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The debate over spectrum in Indian telecom continues. There are two sets of problems with the proposed auctions in 2015. First, the Department of Telecommunications (DoT) has recommended a base price for spectrum in the 800MHz/900MHz/1800MHz bands which is much higher than what was recommended by the Telecom Regulatory Authority of India (Trai). Second, the government is yet to get a fix on the auction of spectrum in the 2100MHz band, which is largely a 3G band. That can happen only once defence vacates the spectrum it holds in the band. 
The industry wants a composite auction where all the bands are auctioned together. The DoT on its part wants to hold two sets of auctions. A single auction would ensure that operators bid rationally. There is some talk of 5MHz of 2100 spectrum being put  out for auction. But, industry has been seeking the auction of the entire 15MHz that is with defence. 
As if that was not enough, the DoT wants a base price of Rs 3,693 crore for 1MHz of 900MHz band in 18 circles against the Rs 3,004 crore recommended by Trai. For 1800MHz in 20 circles it suggested Rs 2,191 crore (Rs 2,138 crore) and Rs 3,646 crore for 800MHz across India. Going by this, the government can earn Rs 33,510 crore at the base price, which is well over three times the government’s Budget target of Rs 9,355 crore.
That could end up being a millstone for telecom service providers. That’s because, incumbent operators need to retain spectrum to continue offering services. Of the 29 licences in the 900MHz band that account for 184MHz of spectrum in 18 circles that will be up for bidding in 2015, Idea has nine; Vodafone and Reliance Telecom (7) and Bharti Airtel (6). Of the 15 licences that amount to 27.8MHz of 1800MHz band spectrum in 13 circles, Idea has five, Bharti (4); Vodafone and Reliance Telecom (3 each). 
The pressure will be on Idea Cellular and Vodafone to retain spectrum. In case they do not acquire spectrum in a circle, they may have to stop services there. Recently, Russia’s Sistema that offers CDMA services on the 800MHz band has criticised the decision. Sistema’s president and CEO, Mikhail Shamolin says: “We consider the price to be very high. If we look at the business model based on CDMA, it doesn’t look like this pricing will allow the business model to function.” However, he does not rule out bidding. “We will be considering it carefully. But right now we see that the pricing is just too much. We haven’t made the decision whether or not to participate.”
It is for the Cabinet to now decide on the price. That could be critical for an industry that despite being the fastest growing in the country has been moving from one crisis to another over the past two decades. 
It’s time for a clean up now, provided the Modi-led government pushes for it.  
(This story was published in BW | Businessworld Issue Dated 12-01-2015)