The Telecom Regulatory Authority of India (Trai) has recommended auction of 700 MHz spectrum for the first time, at a reserve price of Rs11,485 crore per MHz, that could help raise around Rs5,44,000 crore for the exchequer in the process
Against this, the government had earned revenues of Rs1,10,000 crore from spectrum auction in 2015.
This is the highest reserve price fixed for a band ever since the process for spectrum auction started nearly five years ago and the money so raised could be used to wipe off the government's fiscal deficit substantially in FY17.
Trai has also come out with its recommendations on valuation and reserve price of spectrum the 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz bands for the next round of auction, which is expected to happen in May/June this year.
The recommended price of 1,800 MHz band is 31 per cent higher than the base price fixed by the government in the March 2015 auction. The government had fixed Rs2,191 crore pan-India (excluding Maharashtra and West Bengal) price for 1,800 MHz band in previous auction held in March 2015.
The regulator recommended Rs817 crore per MHz for spectrum in both 2,300 MHz and 2,500 MHz frequencies, 33 per cent higher than base price fixed for their last auction held in 2010.
For 2,100 MHz, Trai has recommended Rs3,746 per MHz pan-India against Rs3,705 crore fixed by government in the March 2015 auction. The 800 MHz band, which is being used for 4G services, has been fixed at a base price of Rs5,829 per MHz. The new price is about 60 per cent higher from base price of Rs3,646 crore fixed in the last auctions. It has suggested auction of 800 MHz in 19 out of 22 telecom circles.
The 900 MHz will be put up for auction only in six circles. Trai has also recommended auction of spectrum in 900 MHz in six service areas - Gujarat at base price of Rs673 crore per MHz, Karnataka for Rs558 per MHz, Haryana for Rs151 per MHz, UP East for Rs776 per MHz, UP West for Rs739 MHz and Bihar for Rs444 per MHz.
Earlier, the government had fixed the highest base price at Rs3,980 per MHz for 900 spectrum band in the last auction.
Overall, 37.5 MHz will be put up for auction in the 800 MHz band, 9.8 MHz in the 900 MHz band, 21 MHz in 1,800 MHz, and 345 MHz (out of which 330 MHz to be released by the defence ministry) in the 2,100 MHz band.
In the 2,300 MHz (first auctioned in 2010), 320 MHz will be put up for sale and in 2,500 MHz, 600 MHz will be put up for sale.
Trai has taken 80 per cent (50 per cent for Jammu & Kashmir and northeast) of the average valuation of spectrum band in the licensed service area or the price realised in the March 2015/February 2014 auction, whichever is higher as the base price for spectrum.
The 700 MHz band is considered good for offering mobile broadband / 4G services . The cost of delivering mobile services in the 700 MHz band is approximately 70 per cent cheaper than that in 2,100 MHz and this justifies its price premium.
The 700 MHz band is much sought-after for long-term evolution (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 significantly cuts down capital expenditure involved in making the network live.
However, Bharti Airtel, Idea Cellular and Mukesh Ambani's Reliance Jio in their submissions to Trai had opposed the auction of the new band 700 MHz till a device ecosystem was in place.
However, operators are unlikely to bid aggressively in this new band as cost is high and the benefits will trickle only in the longer run as the ecosystem needed for it to operate efficiently is yet to be ready.
If the auction comes through, it would also address the contentious issue of call drops.