Indian government greed ahead of high-priced spectrum auctions

A reasonable person might infer the main function of a government agency called the Department of Telecommunications (DoT) would be to expedite the development and deployment of telecommunications services. But not in India it seems.

Rather than helping mobile telecoms operators roll out modern networks for the benefit of the Indian consumer, the government bureaucrats seem to be under the impression their job description is actually to try and prevent that happening. Or at the very least to make it as difficult as possible. This appears to be based on the misconception mobile operators have endlessly deep pockets, and so should be responsible for plugging the government’s budget deficit.

Nowhere is this more apparent than in the vital area of spectrum and licensing. The chaotic planning for the 2G/3G spectrum auction originally scheduled to start on February 25, but now delayed until March 4, is a case in point. Controversy surrounds both the spectrum on the block, and the high reserve pricing the government has set against the advice and recommendations of regulator TRAI, trade bodies the GSMA and COAI and individual operators.

There are four frequencies being auctioned. 800 MHz, elsewhere referred to as the 850MHz band, and which is configured in India for CDMA. There were no bidders for this spectrum at a May 2013 auction, and at a reserve price of $592 million per 2 x 1 MHz, or 36% higher than that recommended by TRAI, it may not attract bidders this time around either, particularly as the DoT has ignored requests to reconfigure it as a GSM900 extended band. It is available in all 22 licensing areas (circles) in 2 x 1.25 MHz lots.

At 900 MHz and 1800 MHz there is certain to be bidding because the licences for this spectrum now being used by major operators Bharti Airtel, Idea Cellular, Vodafone and Reliance Communications are about to expire. If the telcos want to keep their customers and protect their investment in infrastructure they have no choice but to take part. Here also DoT has increased the base price suggested by TRAI by 32.5% to 657 million per 2 x 1 MHz for 900 MHz spectrum and $356 million at 1800 MHz. Both are available in 2 x 200 KHz lots in most circles. How crazy bidding will get depends on whether the smaller operators can find the funds to take part. With India’s mobile operators already an estimated $36 bn in debt, this is a big if.

The single 2 x 5 MHz block of 2.1GHz spectrum across 17 circles should have been 2 x 20 MHz, but DoT and the Telecom Commission failed to come to a proper agreement with the Ministry of Defence for transfer of the spectrum after 8 years of talks. Agreement has now been reached but DoT will auction the remaining 2 x 15 MHz later, probably next year – which will keep prices artificially high by creating a shortage now – saying it cannot be cleared in time. Nonsense say operators, if we buy it now we are happy to wait for it to become available. DoT has also boosted the TRAI-suggested price for this spectrum by 43%, to $600 million per 2 x 1 MHz.

Whatever the results of the auction, it is likely to mean a reduced ability for operators to roll out networks, hence poor QoS for subscribers who will almost certainly also end up paying more. Smaller operators may go to the wall. Whether this is down to DoT incompetence or politicians’ greed driven by the fiscal deficit, it is tragic for the Indian mobile phone industry.