‘Broadband’, but narrow reach

The next Indian spectrum auction is expected in mid-2016 and is probably going to be the biggest ever in the Indian telecom sector.

As many as seven frequency bands — 700 MHz, 800 MHz, 900 MHz, I800 MHz, 2100 MHz, 2300 MHz and 2500 MHz — will be on offer, with the total bandwidth being put to auction being as much as 60 per cent of what is currently available.

Many of the longstanding industry demands — that DoT should put up for auction in one go all the spectrum available in all the relevant mobile bands, that spectrum trading and sharing policies be implemented before auctions, etc — have been actioned by the government.

Success vs failure Harmonisation of 1800 MHz spectrum is apparently being implemented by DoT. Industry did not want the spectrum cap rules changed, as had been proposed, and even this has been agreed to. When so many outstanding demands have been met or are being met, there should have been great rejoicing in the industry. Instead, there are serious concerns. Why?

Auctions can be designed for success or for failure. In the current case, reserve prices have been designed to fetch about ₹5 lakh crore to the exchequer. The sector is already in great financial strain, being saddled with a humungous debt burden of over ₹350,000 crore. To ask the operators at this stage to cough up another ₹500,000 crore is totally unrealistic; even if raised somehow, it would mean crippling the sector, leaving no scope for infrastructure investments.

Secondly, the futuristic promise of broadband in 700 MHz band died immediately upon announcement of its astronomically high reserve price. 700 MHz comprises more than 40 per cent of the total quantum of spectrum to be auctioned and has the potential to be the ubiquitous mobile broadband for the common man.

Due to the absence of a price precedent from any previous auction for this band, a possible solution could have been to draw price benchmarks from other bands with near-similar usage and ecosystem characteristics, such as the 2300 MHz frequency. A correction factor could have been applied for the superior propagation characteristics of the 700 MHz band. However, TRAI has recommended the reserve price to be four times that of the totally different well-developed 1800 MHz.

This appears to be based on the authority’s recommendations of April 23, 2012, on ‘Auction of Spectrum’, which, facts show, were erroneous. In para 3.91 of these recommendations, TRAI had tabled some Ofcom data regarding the European practice on the reserve price fixation of their 700 MHz (they refer to it as 800 MHz). However, data shows that European 700 MHz went for less than three times the price of their 1800 MHz. Notwithstanding this evidence, TRAI then went on to recommend, in para 3.92, that the reserve price of 700 MHz should be four times that of 1800 MHz!

The international angle When comparing international reserve prices, one should correct for the differing telecom economics as revealed by the average revenue per user (ARPU) of the regimes concerned. Further, the reserve prices should be compared on the common basis of the ARPU-adjusted RP per MHz per population. Examined thus, Indian 700 MHz reserve price is about US cents 147.2, — a staggering 10 to 15 times the values used by countries such as Canada, the US, Australia, France, Singapore and Brazil, which range from 0.7 to 17.0! The criticality of 700 MHz for the uplift of India’s broadband position actually calls for conscious heavy discounting relative to these countries to make speedy progress.

Further, the rule that the reserve price for spectrum in any circle has to be equal to the reserve or clearing price of the earlier auction, whichever is higher, is incorrect. It doesn’t take cognisance of changed market conditions or the law of diminishing returns or other realities of business economics.

Even a cursory examination of the matrix of reserve prices with the actual mobile revenues of the circles concerned, reveals little correlation between the market potential and the set reserve price.

When affordable broadband service is the stated public goal, to price a prime broadband spectrum band, namely 700 Mhz, at prohibitively high rates is unfortunate. The government needs to keep in mind that short-term revenue generation must be balanced with huge infrastructure investments of over ₹5 lakh crore required in the next five years.

To achieve Digital India objectives, we need to courageously break away from the incorrect legacy decisions.

The writer is the president of Broadband India Forum. The views are personal