The regulator (Trai) has released ‘recommendations on auction of spectrum in frequency bands identified for IMT/5G’ that include the crucial reserve price for C-band. On comparable basis, regulator has cut C-band reserve price by 36%, but due to higher validity period, total pay-out for C-band has changed only little to Rs476bn (100MHz pan-India for 30 years). Spectrum prices for 700MHz have seen steeper cut of 58% (on comparable basis) but still remain expensive; it has even cut prices for 800MHz (which Reliance Jio bought in previous auction). Spectrum supply remains adequate to easily accommodate three players for C-band and thus, we expect bidding intensity to remain muted in the upcoming auction. The regulator has recommended much easier payment option with 30 equal annual instalments that should plug any large cashflow mismatch for Bharti / Reliance Jio. We would wait for NIA for fine prints on the upcoming auction.
Spectrum supply rising. DoT has requested for inclusion of more spectrum bands including 526-612MHz, 600MHz and 28GHz. The regulator has recommended to enhance availability of spectrum in 800MHz band, and relook at certain guard bands that should also increase spectrum availability. Trai has also recommended to provide roadmap for future spectrum band availability based on IMT working. But it has advised to avoid auctioning 526-612MHz band in the upcoming auction. The critical band for the upcoming auction is C-band, which has ample supply. C-band (3300-3670MHz) has enough spectrum for three players with 370MHz spectrum availability; thus bidding intensity may remain muted. 28GHz band (24.25-28.5GHz) could be of interest, but the band may not require large investments. Further, regulator has recommended to conduct harmonisation exercise within 6 months of auction, which should improve spectral efficiency for operators across bands.
Reserve prices’ recommendations are optically higher (vs expectation) on 30 years validity. Trai has cut reserve prices for spectrum across bands on comparable basis (20 years validity). However, price revision looks much lower if one compares on payout basis (irrespective of validity period). This means spectrum price cut will benefit P&L (from lower amortisation impact which factors useful life of spectrum), but would continue to strain the balance sheet which is more related to total payout.
For C-band (5G spectrum), reserve prices have been cut by 35.6% to Rs3.2bn/MHz (Pan-India) on comparable basis, but now spectrum will have 30 years validity which means spectrum reserve prices will be Rs4.8bn/MHz (Rs476bn for 100MHz pan-India). We were factoring Rs300bn for 5G spectrum or Rs15bn/pa, which broadly stays unchanged, but total payout (from net debt perspective) will increase by Rs176bn based on recommended reserve prices. 700MHz spectrum band prices have been cut by 58% on comparable basis to Rs27.5bn/MHz; and for 5MHz Pan-India (30 years) the payout is still expensive at Rs206bn. For 800MHz band, spectrum prices have been cut by 23.8% on comparable basis.
Reserve prices for 28MHz are recommended at Rs105mn/MHz (pan-India, 30 years). For a block of 400-500MHz, the spectrum will cost Rs40-50bn.
- Spectrum payment schedule easing. Regulator has recommended two payment options – option-1: full or part upfront payment within 10days of auction completion. For part upfront payment, buyer will have moratorium for proportionate period of payment, and balance shall be payable in equal annual instalments over the remaining period; and option-2: payment of 30 equal annual instalments of the total bid value.
- No surprise in block size; revision in spectrum cap recommended. Block size remains reasonable for C-band and 28GHz at 10MHz and 50MHz, respectively. Block size in remaining spectrum bands remains mostly same with minor tweaking. Regulator has recommended spectrum cap across bands with sub-GHz (including 600MHz band) at 40%, C-band and 28GHz at 40% each, and cumulative on remaining bands at 40%. It has recommended to do away with overall spectrum cap.
- Spectrum surrender guidelines recommendations. 1) Permitting surrender of spectrum after minimum 10 years of date of spectrum acquisition for spectrum sold henceforth; 2) operator should make request at least 12 months prior to spectrum surrender; 3) DoT should provide in-principle approval in 60 days of date of application; 4) operators should clear all spectrum related dues as communicated by DoT; 5) DoT should put the proposed spectrum surrendered for auction immediately; 6) operator will be barred for 2 years to participate in spectrum auction in that particular band; and 7) surrender fees should be minimum with only administrative fees of Rs100k.
- Spectrum auction annually. 1) Fresh valuation exercise should be conducted every three years; 2) for spectrum sold in previous auction, indexation (using applicable MCLR if >1years) should be applied for next auction reserve price; and 3) if spectrum remains unsold in previous auction, past recommended reserve price should be considered for next auction.
- DoT is already considering assigning spectrum for 5G services to BSNL / MTNL.
- Trai has recommended certain measures to mitigate the inter-operator interference in TDD bands. The measures include: 1) operators should be assigned contiguous spectrum in each spectrum bands; 2) spectrum frequency should be same for each operator across circles; and 3) interference mitigation should be left to mutual coordination between the operators.
- Regulators want operators to be mandated to publish the network deployment map on their website depicting the serviced area on C-band and 28GHz band.
For the detailed report, click here – https://www.communicationstoday.co.in/telecom-5g-spectrum-auction-recommendations-icici-securities/