After just 38% sale in telecom auctions, 5G spectrum prices likely to be reduced

The spectrum auctions in early March witnessed higher participation from telecom operators than expected. Three telcos - Reliance Jio, Bharti Airtel and Vi - snapped up spectrum worth Rs 77,815 crore across different bands. Despite buying more than anticipated, telcos had together bought 855.7 megahertz (MHz) of airwaves, which is 38 per cent of the total spectrum (2251.25 MHz) up for sale. Experts say that the moderate participation in the recent auctions - in both volume and value terms - is actually good. How?

Since the government is expected to hold 5G spectrum auctions in less than a year, the recent auction could set the bar as far as pricing is concerned. "TRAI's [Telecom Regulatory Authority of India's] recommendation for 3300-3600 MHz bands had come in 2018; the 5G ecosystem has changed a lot since then. TRAI needs to look afresh at 5G pricing taking into account the moderate participation in the recent auctions, and adequate international examples," says a telecom analyst.

For instance, when TRAI had recommended 5G spectrum in 2018, it also said that "due to lack of adequate comparable data points, international benchmarking may not be appropriate for current valuation exercise for 3300-3600 MHz." However, many countries have auctioned and deployed 5G services over the past three years.

As per brokerage CLSA, the government is likely to cut spectrum prices ahead of 5G auction. "With 63 per cent of the spectrum in this auction unsold, there will likely be cuts in reserve prices. Historically, the government has cut spectrum prices by 30-40 per cent if it saw no demand in the previous auction and this will be a significant positive especially for 5G. Further, in future 5G auctions with the 275MHz spectrum available in 3.3-3.6 GHz [gigahertz] bands alone (besides other bands) and only three operators, there will be good supply," said a CLSA report.

A March report presented by Standing Committee on Information Technology, headed by Shashi Tharoor, titled India's Preparedness for 5G, said that the regulator's recommended reserve price is quite high in comparison to the auctioned discovered spectrum price in other countries in the 3.5 GHz band. TRAI has recommended Rs 492 crore per MHz as base price which is higher than the auction-determined price in Italy (Rs 182 crore per MHz), the UK (Rs 70 crore), Australia (Rs 35 crore), Spain (Rs 14 crore) and Austria (Rs 7 crore).

"Considering the stress in the sector and that the 5G ecosystem is yet to be developed, keeping such a huge reserve price for 3.3 GHz to 3.6 GHz will undoubtedly have an adverse impact on the ability of the TSPs (telecom service providers) to fully rollout 5G in the country. The committee is of the view that long-term consumer benefit should be the guiding principle and not short term revenue maximisation," said the Standing Committee on IT report.

Given that the government is yet to finalise the reserve prices for 3.5 GHz band, the telcos can hope for some relaxation in pricing by both TRAI and DoT (department of telecommunications).

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