Indian government modestly reduces 5G spectrum reserve prices

With the much-anticipated 5G spectrum auction around the corner, the Indian telecom industry is a hotbed of activities right now. The government is planning to hold a 5G spectrum auction in early June, making it possible for the telcos to launch 5G by August or September this year. The government is keen to launch the services on August 15, India’s Independence Day.

The Telecom Regulatory Authority of India (TRAI) had recently shared its recommendations, which have now been accepted by the Department of Telecommunications (DoT), thus paving the way for the auctions. 

On sale would be more than 100,000 MHz of spectrum in 3.3-3.6 GHZ, 24.25-28.5 GHz, 600 MHz, 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz. 

The question of reserve price 

To an extent, the new TRAI recommendations address the price issue raised by the service providers several times over the last few years. As per the new recommendations, the pan-India reserve price for mid-band 3.3-3.6 GHz has come down by 36%, from INR4920 million ($64.17 million) per MHz to INR3170 million ($41.31 million) per MHz.

Further, the regulator has reduced the base price for the 700 MHz spectrum by 40% to reach INR3930 per MHz. This spectrum had remained unsold in the last two auctions in 2016 and 2021 because of the high reserve price. The reserve price of spectrum in other frequency bands, including 800 MHz and 2500 MHz, has also been reduced by 24-49%. 

“The spectrum pricing recommended by TRAI is too high," says the statement issued by Cellular Operator Association of India (COAI). "Throughout the consultation process, the industry had presented extensive arguments based on global research and benchmarks for a significant reduction in spectrum prices. Industry recommended 90% lower price, and to see only about 35-40% reduction recommended at prices, therefore is deeply disappointing.” Recently, Sunil Bharti Mittal, Chairman of Bharti Enterprises, urged the government to rethink spectrum prices as expensive spectrum will impact the rollout and modernization of telecom networks.

Further, TRAI has recommended that payments be spread over 30 years and has offered options for payment to make it easier for the telcos. The telcos can make the entire payment within 10 days of the auction results. They can also make a partial upfront payment and the balance in equal annual installments over the remaining period after the moratorium. The service providers would also be able to make payments in 30 equal annual installments, with the first payment to be paid within 10 days of the final price declaration. 

Who is going to bid for what? 

The reduction in the prices reflects that there is not going to be aggressive bidding this time, so the government may want to ensure that it is able to garner as much as possible from the auction. The price reduction is enough to entice telcos to participate but at the same time ensures that the government’s interests are protected.

There are only two strong service providers, Reliance Jio and Bharti Airtel, and with adequate spectrum on sale, there is enough spectrum for them, thus doing away with any need for intense bidding.

There is little doubt that Reliance Jio and Bharti Airtel will acquire pan-India 5G spectrum in low-, mid- and high-frequency bands. However, it is unclear how Vodafone Idea’s participation will pan out. The service provider is yet to find an investor, making it challenging for it to find financial resources to pay for the spectrum. The chances are that Vodafone Idea will acquire a limited spectrum in key circles, so it is able to provide 5G services to its high-value customers.

Both telcos and enterprises can acquire spectrum for 5G private networks  

Another critical recommendation by TRAI was that it allows the enterprises to acquire spectrum from the government to set up 5G private wireless. The service providers were lobbying against this.

“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,” says the COAI statement.

The next few months are likely to witness heightened activity by the telcos as they gear to acquire spectrum, set up a 5G network, and finally launch 5G commercial services in the country.