Why telecom ministry rejected demand to cut 5G spectrum prices

Despite the ongoing stress in the sector, the telecom ministry has categorically declined the request of industry to reduce the 5G spectrum prices in the upcoming auctions. Recently, telecom minister Ravi Shankar Prasad said that the 5G spectrum auction will take place by the end of this year or early 2020. In reply to a query from a Lok Sabha member, the minister said that the government is not planning to reduce the base price for the 5G spectrum.

The base price of the 5G spectrum (in 3400 megahertz to 3800 megahertz band) is highest in India. As per brokerage CLSA, the base price per megahertz (MHz) for spectrum in this band is $70 million in India as compared to $26 million in Italy, $18 million in South Korea, $10 million in the UK and $5 million in Australia. Various industry bodies, including Associated Chambers of Commerce and Industry (ASSOCHAM), Confederation of Indian Industry (CII) and Broadband India Forum (BIF), have written to the government about high spectrum prices. But their plea seems to have fallen on deaf ears.

Telecom regulator TRAI (Telecom Regulatory Authority of India) has recommended auction of about 8,644 megahertz (MHz) of radio frequencies in nine bands for sale at a base price of Rs 4.93 lakh crore.

That's not all. The minister has also said that the 5G spectrum allocation for the upcoming auctions is sufficient enough to start services. BIF had said that the quantum of 5G spectrum is not enough for a country of India's size and density.

In a separate reply, the minister has acknowledged that the ability of telecom operators to pay for spectrum will be constrained due to declining voice and data rate, overstretched balance sheets and inadequate appetite for equity in the market. Yet, he replied that few telcos have recently decided to increase the tariffs for voice and data. "The government also has recently decided to give relief to financially stressed telecom service providers by permitting deferment of spectrum auction payment instalments for next two years (2020/21 and 2021/22)," the minister said.

The problems of the sector got aggravated recently when the Supreme Court ruled against the telcos in a 16-year AGR (adjusted gross revenues) dispute. That ruling has also raised doubts on the government's ability to conduct auctions by next year. "We do not expect telcos to bid for 5G spectrum in the next 12-18 months. We think mass-scale deployment of 5G in India will pick up only when 5G achieves scale in China as it would lead to more affordable handset and equipment prices for 5G," said analysts at Bank of America Merrill Lynch, in a report.

The base price of the 5G spectrum has been a contentious issue for quite some time. After telecom regulator TRAI (Telecom Regulatory Authority of India) recommended the base price in 2018, there was a huge commotion. DoT (department of telecommunications) had asked the regulator to review prices but the TRAI stuck with its previous recommendations. In the last auctions (October 2016), TRAI had recommended "exorbitant" base price of Rs 11,500 crore per MHz for 700 MHz band spectrum, but there were no takers. Although some industry experts still believe that the DCC (Digital Communications Commission) has the option to review prices at this stage; by not budging to the repeated requests, the DoT and TRAI seem to be heading towards yet another round of failed auctions as and when they happen.

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