Telcos May Proceed Cautiously On 5G Spectrum Auction

It’s been three years since the last spectrum auction, where more than half of the spectrum on block remained unsold as telecom players refrained from bidding for 700 MHz frequency owing to a high reserve price.

In 2019, the government plans to hold the next round of auction, including for 4G and 5G spectrum. But again, the concerns over pricing remain the same.

Experts say telecom players may look at strengthening their 4G spectrum portfolio instead of buying 5G spectrum, as use cases specific to India are yet to be fully developed. Though, many are of the opinion that the auction should happen only in the next fiscal.

• Minister for communications Ravi Shankar Prasad on Monday said the 5G trials will start in the next 100 days and an auction will happen in this calendar year
• In the last auction in 2016-17, the government mopped up around Rs 65,000 crore of revenues

Owning a block of spectrum across circles in newer bands at Trai recommended price will entail a capital expenditure of around Rs 9,800 crore and telecom players might end up bidding only in premium circles like metros and circle, in case spectrum auction is held this year.Hetal Gandhi, director, Crisil Research, told DNA Money that the reserve prices recommended by Trai for 5G spectrum is definitely too high compared to prices of similar bands for spectrum auction conducted in countries like South Korea and UK.

The two main players, Airtel and Vodafone Idea, are already apprehensive of the auction timing this year and the high reserve price for 5G spectrum. The cumulative debt of the industry stands at around Rs 7 lakh crore and the lack of alacrity by the telecom industry is palpable.

Minister for communications Ravi Shankar Prasad on Monday said the 5G trials will start in the next 100 days and an auction will happen in this calendar year.

The revenue proceeds from the spectrum auctions will enable the government to bridge the fiscal deficit. In the last auction in 2016-17, the government mopped up around Rs 65,000 crore of revenues. But, the same auction saw 700 Mhz, used for 4G services and put on the block for the first time, remained unsold making it a lacklustre auction resulting in lower than expected revenues. The reserve price for 700 Mhz has now been reduced by Trai in its latest recommendations on spectrum auction and pricing. Trai has recommended an auction of about 8,644 Mhz of spectrum, including 5G at a total base price of Rs 4.9 lakh crore.

“It is quite pertinent to reduce the reserve price in order to see healthy participation across circles by the telcos. The telecom industry is expected to recover this fiscal, hence, auction if held next fiscal at a lower reserve price might be an optimal solution for the government as well as telcos,” Gandhi said.

Mahesh Uppal, a telecom consultant, says the government should be driven by the market in deciding the timings of spectrum auction. The use cases of 5G are still developing and the best time to hold the auction is when operators are ready to deploy the spectrum.

“Government is divided between its interest in developing 5G market and furthering its revenues from the auction. These twin objectives do not necessarily overlap. From the industry’s perspective, the government should ensure the spectrum is auctioned at a time when operators are able to invest and at a price that encourages the rollout of services. If all money will be used in acquiring spectrum, then the rollout of services would suffer,” he said.

In an emailed response, an Airtel spokesperson said, “Spectrum is the lifeline of the mobile industry. Bharti Airtel has, through participation in various auctions and through merger and acquisitions, created one of the largest pool of spectrum in the industry. In any auction in the future, Bharti Airtel will participate to pick up small chunks of 4G spectrum in certain circles. On 5G, it will depend on the pricing, which we hope will be set at prices which encourage more investments in networks rather than spectrum purchase.”

On Monday, Vodafone Idea CEO Balesh Sharma said 5G spectrum should be made available to all players at reasonable prices so that more investments are directed towards enhancing network capacity and capabilities and at the current level, the spectrum prices are exorbitant for sure.

Replying to queries, Vodafone Idea said, “4G has catalysed the digital revolution and still has a long way to go. The advent of 5G will further accelerate the rapidly growing data volumes. To enjoy the benefits and rich experience of these technologies, a ‘fibre first’ approach to link towers for both access and backhaul is critical.”

The immediate need is to conduct 5G trials and successfully pilot India specific use cases to fully harness its potential. Going forward, spectrum must be made available at the right price and under right terms and conditions such that it empowers the Indian telecom sector to fulfil its designated role of making broadband accessible to all and for achieving the larger vision of Digital India, Vodafone Idea said.

However, not all players want a postponement of the proposed auction. The new player Reliance Jio, which triggered hyper-competition and consolidation in the sector, had earlier said it is in favour of an auction this year.

COAI director general Rajan Mathews said the majority of our operators have indicated that 5G spectrum is far too prohibitively expensive and their balance sheets can’t afford this. “Majority of our operators believe that the spectrum for 5G is overpriced by at least 30-40% compared to international standards and auction in other markets like South Korea and the US.”

“Auction has to be timed well. This time the intensity of bidding would anyway be lower as only three private players are left. The auction should happen next year when use cases of 5G will have developed more and financials of incumbents are expected to improve,” Uppal said.

The government expects 5G to become a reality by 2020 and wants to be at par with global countries for launching next-generation 5G services. But the fact is that 5G technology deployment needs huge fiberisation. Only one-fourth of towers in India are fiberised while globally it is 70-80%. Also, 5G will be a niche service and mainly target segments such as healthcare and education.―DNA India