TRAI recommends 700MHz spectrum auction for first time

With India seeing a surge in the adoption of 4G services, the Telecom Regulatory Authority of India (TRAI) has recommended the Indian government sell spectrum in seven bands including 700MHz in the next round of auctions, expected to take place in May or June this year.

TRAI has also fixed the reserve price for 700MHz at 11,485 crore rupees per MHz ($1.7 billion), 2,873 crore rupees ($435 million) per MHz for 1800MHz, and 3,746 crore rupees per MHz for 2100MHz spectrum, respectively. Besides this, the regulator has fixed 803 crore rupees as the reserve price for four other bands in 800MHz, 900MHz, 2300MHz, and 2500MHz spectrum. In the 1800 frequency, only 22.5MHz is available for auction and the rest was sold in previous auctions.

The 700MHz spectrum is being auctioned for the first time and is expected to improve the last mile connectivity for mobile broadband and 4G services. The reserve price fixed for this is also the highest ever price fixed for a band since the process for spectrum auction commenced in 2011.

"The 700MHz band is a sought-after band for LTE deployment around the world due to its efficiency and higher penetration inside buildings. Due to lower frequency it provides wider coverage which reduces the number of towers required for setting up the LTE network and thus significantly cuts down capital expenditure involved in making the network live," TRAI said in its recommendations.

If the regulator's recommendations are considered in toto, the government would rake in a whopping 5.36 lakh crore rupees (over $85 billion) from the auctions, which is more than double the combined revenues generated (2.54 lakh crore rupees) by all telecom companies during the financial year 2014-15.

Of the expected revenues, the auctioning of 700MHz spectrum alone would fetch around 4 lakh crore rupees ($64 billion). In the last round of auction held in March 2015, the government auctioned 470MHz of spectrum in four bands and 1.1 lakh crore rupees ($17.6 billion).

However, citing poor financial conditions, major telecom service providers urged the government six months ago to defer the auction of spectrum for at least two years. These service providers said that the companies were not in a position to invest in buying spectrum at this juncture and would not be able to make optimum use of the spectrum for several years, as the ecosystem for providing services in this band was not developed and the market was still immature in the country.

The telecom companies are reportedly facing a debt of 3.5 lakh crore rupees ($36 billion) and it is doubtful the government would get the expected revenues by way of auctions this summer.

Even rating agency Credit Suisse recently said that the three largest mobile operators will face increased financial pressure if the country's planned spectrum auction goes ahead as per schedule. Regardless, TRAI decided to recommend the government to go ahead with the auction process. This is also expected to give a fillip to the hardware market in the country as the telco industry is growing rapidly, especially handset manufacturers.

General manager in the Department of Telecommunications Raghavendra Rao said that the connectivity will definitely improve as there will be no interference due to low frequency, the data will be more reliable, and the noise will come down. "Even the spectrum used by the Indian Defence Ministry for communications in the past is also being made available now," he said.

Another senior official, P Sitarama Raju, general manager at Hyderabad Telecom district, said that the problem of call drops would be sorted out substantially with the 700MHz. "It is like driving on a highway with less traffic compared with using congested road with heavy traffic," Raju added.