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Industry responds on TRAI’s recommendations on the proposed base rates for the 5G auction

Industry responds on TRAI’s recommendations on the proposed base rates for the 5G auction

Sterlite Technologies
“Today, India’s 5G story turns a new page! Every penny saved in the spectrum auction can be used to deliver enhanced customer experience. Initial estimates suggest around 35% reduction in the spectrum pricing. This is a very welcome move and will play a pivotal role in bringing the country closer to its 5G dream. This will enable service providers to spend additional Capex and launch new-age services and business models. The lower budgetary obligation for spectrum will allow the telecom operators to strengthen their fiber penetration in backhaul infrastructure, bolster the initiatives around building broadband highways, connecting rural areas, and investing towards Open RAN – all essential prerequisites for 5G and fulfilling the vision of a truly connected country. Also, the introduction of new bands and Telecom Innovation Centres will further boost 5G use cases and applications in various sectors.”
Ankit Agarwal, Managing Director, STL

COAI
COAI is disappointed by TRAI’s recommendations for auction of 5G spectrum bands. Given the recent seminal reforms for the telecom sector announced by the Government of India, these recommendations are one step backwards than forward towards building a Digitally Connected India.

The spectrum pricing recommended by TRAI is too high. Throughout the consultation process, industry had presented extensive arguments based on global research and benchmarks, for significant reduction in spectrum prices. Industry recommended 90% lower price, and to see only about 35-40% reduction recommended in prices, therefore is deeply disappointing.

Despite the Government’s decision to allocate 5G spectrum for a period of 30 years, the TRAI has decided to recommend reserve prices for 20 years and applied 1.5 times multiple to the price if spectrum is to be taken for 30 years. If one were to look at the pan-India price of 3.5 GHz spectrum, then we are back to square one with effectively no change and will nullify the relief provided by union cabinet in the year 2021. This defies logic and calls for lower spectrum prices by the industry and intelligentsia to keep spectrum prices lower to enable the industry in aggressive network rollouts that will require massive investments.

Also, by introducing mandatory rollout obligations for 5G networks without even factoring the huge cost of such rollout, the TRAI has delinked itself from reality and is running counter to the Government’s efforts of enhancing ease of doing business. It’s best to let the service providers be the judge for rollout of networks based on market dynamics. No operator invests in large quantum of spectrum and network capex and opex without a clear monetization roadmap and the companies are answerable to their investors and stakeholders.

By allowing private captive networks for enterprises, TRAI is dramatically altering the industry dynamics and hurting the financial health of the industry rather than improving it. Telecom Service Provider have and going forward will invest lakhs of crore rupees in network rollouts.

Enterprise services constitute 30-40% of the industry’s overall revenues. Private networks once again disincentivizes the telecom industry to invest in networks and continue paying high levies and taxes.

We urge the TRAI to:

  • Revisit its spectrum pricing recommendations. The industry strongly believes there is enough and more headroom available to reduce spectrum prices by 90%, in line with global norms. TRAI must do away with the 1.5 times price multiple for 30 years spectrum allocation.
  • Do away with the minimum rollout obligations as this is a retrograde step. The industry must be empowered to decide its rollout strategy once it has acquired spectrum at the said price.
  • Disallow private enterprise networks for the financial viability and orderly growth of the telecom industry, which is more than capable of delivering these services to businesses.

IAFI
ITU-APT Foundation of India (IAFI) today welcomed the Telecom Regulatory Authority of India (TRAI) 5G spectrum recommendations to the Department of Telecommunications (DoT). IAFI very much appreciates the TRAI open consultative process and the detailed analysis that has been well documented and presented in their recommendation

Commenting on the TRAI recommendations, Bharat Bhatia, President IAFI said that he is extremely pleased with 50% cut in the reserve price for 700 MHz band and the 35% reserve price of mid-band 5G spectrum in the 3.3-3.7 GHz band from the previous TRAI recommendations. However, even now the reserve prices are much higher than what IAFI had recommended in our comments to the TRAI consultation.

He further added that the IAFI is also pleased with TRAI’s acceptance of our proposal for Option B1 for the new 600 MHz of 40+40 MHz, an IAFI recommendation that was already accepted by the APT – Asia Pacific Telecommunity, the Asia Pacific regional telecom organization at its 29th AWG meeting in March this year. It may be recalled that the IAFI was leading the regional consultations among the Asian countries to finalize a harmonized band plan for the APT and had recommended that the option B1be the APT band plan for this new 600 MHz band.

IAFI is also pleased that the TRAI recommendation to auction the new 40+40 MHz spectrum in 600 MHz APT band along with 30+30 MHz in 700 MHz APT band is expected to provide enough UHF spectrum for the mobile operators. These two bands are crucial for the rollout of 4G/5G services in rural and suburban areas as well as to enhance indoor coverage in major cities and are expected to resolve many call drop issues. However, IAFI would have liked the 600 MHz band reserve price to be somewhat lower than that of 700 MHz due to extensive ecosystem availability for the 700 MHz 3GPP band 28.

IAFI is also very pleased with the recommendation to create necessary enabling provision for the enterprises to obtain 4G/5G spectrum on lease from TSPs or to obtain the spectrum directly from the government and establish their own Captive Wireless Private Network for which a very light touch online portal-based regime for acquiring permission/license for ‘Captive Wireless Private Network (CWPN)’ has been recommended. IAFI also welcomes the suggestion of earmarking 40 MHz each in 3700-3800 MHz band 4800-4990 MHz for private captive network. IAFI is actively working on CWPN in ITU-R and APT – AWG.

Further IAFI, also welcomes the proposal of TRAI to reduce the mid band prices to 35%. However, these are still 2 to 5 times higher than in other countries such as UK, Germany and Korea and would like to request DOT to further reduce the same by about 50%.

Broadband India Forum
Broadband India Forum, the leading independent Think-Tank and Policy Forum for Digital Communications in the country, has hailed the TRAI’s forward-looking recommendations on ‘Auction of Spectrum in frequency bands identified for IMT/5G’ as historic and one of the most progressive ones for the Indian Digital Communications sector, ever since its inception. The balanced recommendations provide opportunities for all stakeholders, and would eventually lead to better efficiencies, output and thereby greater economic gains for the country.

The entire gamut of available spectrum in 600 MHz (APT 600 Option B1), 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz, 2500 MHz, MHz and 24.25-28.5 GHz spectrum bands has been recommended by TRAI to be put to auction. This would be extremely useful keeping in view that only limited spectrum is available for 5G in the 700 MHz band. The sub-GHz spectrum bands are extremely useful for indoor coverage in the Metros and for Rural Coverage. This, together with band plans flexibility in MHz and 24.25-28.5 GHz spectrum bands as per commercial/business considerations, light touch and reasonable recommendations in areas like rollout obligations, and related conditions to surrender of spectrum; confirm that the promotion of healthy competition, encouraging investment and reducing unnecessary regulation in the sector is top priority.

In future auctions, access spectrum will be assigned for a period of 30 years as against 20 years now. TRAI has recommended the reserve price to be 1.5 times the reserve price for 20 years for the respective band, which is a constructive step for the industry. Increasing the validity of spectrum from 20 to 30 years confers substantial advantage to TSPs by giving a longer-term certainty for planning and recovering their investments. Since the period over which the cost will be amortized increases, it will allow affordable annual outflows and offer more flexibility to TSPs, besides giving them more time to hone in on the big-ticket use cases. TRAI has also recommended flexible payment options for spectrum pay-outs for sustainable growth, for infusing liquidity and encouraging investments into the sector. Removal of overall spectrum cap, a liberalised procedure for surrender of unused spectrum, and liberalised rollout plan are also progressive steps.

TRAI has mooted the concept of sharing of spectrum between the Satellite and 5G industry (in the mmWave bands 27.5-28.5 GHz) in a harmonious manner, which is laudable. TRAI has noted that though the 28.5 GHz band (27.5 – 28.5 GHz), has not been identified by WRC-19 (ITU) for IMT usage, the Government has taken a decision to assign the same for IMT with justifiable reasons. The suggestion that the 24.25-27.5 GHz (26 GHz band) be auctioned first, and only if required, it should be followed by the 28 GHz band, is also a welcome step.

The impact of out-of-band emissions from 5G to Satellite Broadcasters in the extended C band (3800-4200 MHz) would lead to additional cost implications, including expensive filters and other corrective actions. In all fairness, the broadcasters need to be compensated for the installation of interference compensation equipment, as recommended by TRAI. This is in accordance with global best practices.

In terms of spectrum pricing, a price of INR 317 crores/MHz of 5G spectrum has been recommended in the key 3.5 GHz band. While the revised price may appear to be only 35% below the previously recommended price, this may be the best possible under the circumstances, since the indirect benefits from a 30-year tenure and easier payment terms would be quite substantial.

The recommendation of a 5G-dedicated Inter-Ministerial Working Group (IMWG) is an excellent suggestion as the involvement of all stakeholders to support cross-sectoral development, through the creation of special dedicated Digital Cells will create great harmony and synchronization of efforts. The scope of the Digital Cells setting quantitative targets by framing and monitoring short-term (annual), medium-term (5-year), and long-term (10-year) plans is a prudent recommendation.

It is heartening to note that TRAI recommends setting up of Telecom Innovation Centres specialized for development of innovative solutions for 5G use cases and applications in different verticals. The recommendation for a study by DoT to find out the levels of acceptance and adoption of 5G based industrial automation and digital technologies by the MSME sector in India, will help them overcome various constraints and move towards industrial automation with Government support.

TRAI’s reiteration of the need for Unbundling of Different Layers Through Differential Licensing, preferably before conducting the auction while making suitable provision for the Network Service Providers in the NIA under eligibility criteria for participating in Auction and other related clauses such as spectrum sharing, spectrum trading, etc. would lead to more efficient use of spectrum, improved technological prowess, healthy competition, effective operations and economies of scale. Further the decision requested at the earliest by TRAI on the recommendations made for ‘Enhancement of Scope of Infrastructure Providers Category-I (IP-1) Registration would lead to more efficient use of networks, and help bring out optimal results for 5G, while helping cope with the ongoing as well as future data demand likely to arise out of Next Generation Services.

BIF President, TV Ramachandran, shared on the recommendations, “These are one of the most holistic, far-sighted and balanced recommendations in the last 25 years of the Indian Telecom industry. BIF compliments the Authority on having crafted the recommendations with an eye towards consumer benefits, adoption of technology, and continued reforms, for the benefit of all.”

In terms of private networks, TRAI’s comprehensive recommendations are balanced and practical, and address the interests of the TSPs, the enterprises, as well as the public – since more private networks would lead to more employment opportunities and business, and in turn, translate into greater economic output and benefits.

An enabling framework consisting of 2 distinct processes has been recommended: establishment of private networks for enterprises by TSPs through their assigned spectrum, and through enterprises directly obtaining spectrum from the Government in an administrative manner. Having considered that Captive Wireless Private Networks are not Public Networks, have no market customers, and are limited to a specific location; TRAI has most appropriately recommended that the spectrum is to be assigned administratively, in line with global practices. It is also laudable that the Authority has stated it would recommend pricing keeping in mind transparency, geographical aspects, factoring of market price, etc. for the Private Networks.

A certain amount of exclusive spectrum (non-public 5G) is recommended to be earmarked for private 5G networks. This will provide an improvement over the average SLAs of Public Networks, besides complete lack of interference between them. This will, in turn, accelerate Digital Transformation of Enterprises to Industry 4.0, and boost both ‘Atmanirbharta’ & ‘Make in India’.

A very light touch online portal based paperless regime for acquiring permission/license for ‘Captive Wireless Private Network (CWPN)’ within 30 days of application, as recommended, would enable ease of doing business (EoDB).

On the aspect of Private 5G Networks, Ramachandran added – “When implemented in policy, these recommendations would enable India to showcase early adoption of 5G across several different verticals – be it healthcare, education, manufacturing, or more, and extract its manifold benefits therein. We can ill afford to stay behind the rest of the world, and this is an opportunity for India to catch up on 5G through Private Networks.”

These balanced and highly progressive recommendations, once formalised into policy, would be a win-win for all. India would not need to wait for pan-India rollout of public networks to enjoy the benefits of 5G. Learnings from use of Private 5G Networks can be used to build competence and significant expertise, and further be leveraged for wider deployment of our nation-wide Public network.

ICRA
“TRAI has recommended spectrum auctions with one of the largest quanta of spectrum on offer (more than 100,000 MHz). A lot of new bands have also entered the spectrum auction process viz. 600 MHz, 700 MHz, MHz and 28 GHz bands, which contribute more than 80% of the total value of spectrum to be put to auctions. The reserve prices have been materially revised downwards by around 35-40% from the last spectrum auction and despite this, the total spectrum on offer at reserve price is valued at around Rs. 5.0 lakh crore for 20 years. Even at a modest participation in this auction, the debt levels of the industry are likely to elevate further to Rs. 4.8 lakh crore by March 2023, despite the improvement in the cash flow generation post the tariff hikes as well as the deleveraging initiatives undertaken by the telcos. The Government of India had budgeted around Rs. 52,800 crore as non-tax receipts from the telecom sector for FY2023, of which it is estimated that around Rs. 26,000 crore is from upfront payment of auctions proposed in the current fiscal.”
Ankit Jain, Assistant Vice President & Sector Head-Corporate Ratings

DIPA
At present around 33% of telecom towers are connected on fiber in India which needs to be enhanced to at least at least 70% of the towers to be fiberized to serve 5G requirements. National Broadband Mission, which was launched in December 2019, envisages 70% fiberisation within 5 years’ time, by 2024.

In order to make 5G a success story in India, it is essential to invest on network densification heavily through provisioning of fiber, small cells and mobile towers.

For faster rollout of 5G in the country, sharing of fiber should be mandatory which will save the operational costs of the telecom operators as well.

According to T.R.Dua, Director-General, Digital Infrastructure Providers Association (DIPA),” Fiberisation would play an essential role in getting India ready for 5G. While the current capacity per tower site is about 200 mbps for 2G/3G/4G services, for 5G service, the capacity needed for each site will increase to 1-5 Gbps, which will require fiberized backhaul. At present, the fibre connectivity to the telecom tower stands at 31% on pan India basis. The National Broadband mission has envisaged the Fibre to the Tower % to grow to 70% by 2024 in order to support 5G.”

Currently, out of 2,30,7068 Base transceiver station (BTS), only 793551 BTS are connected to fibre accounting to total 34.4% in the country. Some of the big name states like Delhi, Uttar Pradesh, Bihar , Gujarat are merely 30% fiber connected , way far behind the set target of 70% and few states like Himachal Pradesh are not even 30% fibre connected presently.

As per E&Y report in 2019, the capex requirement would be around Rs 45, 000 Crore to reach 70% tower fiberisation by 2024.

Roll-out of new technologies like 5G requires mushrooming of small cells and fiberization of the networks which will entail substantial amounts of fresh investments across the country- could be facilitated through enhancement of scope of IP-1 enabling active infrastructure sharing which can be an effective mechanism to attract the much needs funds and enable faster rollout of 5G network.”

ICICI Securities
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.

Other highlights

  • 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.

Deloitte India
“In order to make 5G services more affordable across the country, the basic price cut was well warranted, given that the mid-band frequency will be core to the 5G deployment in the initial phase. But in the 1.5 times the 20 year price tag has swung the ball back in the hands of DoT.

A further price reduction of spectrum may spur Indian telecom operators towards an aggressive bidding and also help the Government monetize the unsold spectrum.

The telcos will also not be pleased with the proposed guidelines on the allocation of spectrum for private networks. The leverage on the balance sheet will be driven by the pay-outs required over the next few years on account 5G spectrum and roll-out obligations.”
Peeyush Vaish, Partner and Telecom Leader

CT Bureau

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