India releases more spectrum ahead of auction, but is it enough?

India’s Department of Telecom (DoT) has approved plans to release more 1800MHz spectrum in each of the country’s circles ahead of the 2G re-auction, set to be held after all licences were revoked by the Supreme Court amid allegations of corruption.

According to Shiv Putcha, principal analyst in Ovum’s Emerging Markets team, India’s spectrum auction process is a very complex and bureaucratic one. The DoT sends its recommendations on the spectrum to the Telecoms Regulatory Authority of India (TRAI), which studies those recommendations and sends them back.

Once that part of the process is complete, the final set of recommendations is sent to the Telecoms Commission which is an inter-ministerial group, including the Telecoms Secretary, and the committee made up from representation from different ministries, such as the law ministry, finance ministry, telecoms ministry. The Telecoms Commission reviews the recommendations, and then sends them to the Cabinet.

Under the latest recommendations, the Telecoms Commission has saved a large slice of the 1800MHz band, so that all of the operators that held spectrum in the 900MHz band, would be given an equivalent amount in the 1800MHz band when their licence expired. India’s Telecoms Commission has now made some of this reserved spectrum available for the 2G upcoming auction.

“By reserving a huge chunk of spectrum, the problem is that it creates an artificial scarcity,” explained Putcha. “The need for spectrum is today. Refarming will take place over several years, but the spectrum is needed today. By doing this, the government is actually limiting supply and creating an artificial scarcity, which is good for those selling the spectrum, but it’s not necessarily good for the sector as a whole.”

Industry body the GSMA welcomed the Telecom Commission’s decision to release more spectrum in each circle in the 1800MHz band, which it noted is double the level recommended by the TRAI, but also had concerns regarding the format of the auction.

“This decision is a first step in the right direction for the Indian people and economy, but is insufficient to meet the rising demand for mobile services over the long term and is still at a lower level than what is currently available,” it said in a statement.

In addition, the country’s Telecom Commission has come under fire from various quarters complaining that the base price set for the auction is too high, and is close to ten times more than what operators had paid in 2008.

PriceWaterhouseCoopers recently carried out its own assessment of India’s auction process, and estimates that if the base price stays at the same rate, the cost per minute for customers will go up between 29 to 34 paisa, while the TRAI estimates it would only increase by 4.4 paisa.

“The bottom line is that PWC is saying that operators cannot absorb this cost, so it will have to be passed on. If the government stands its ground, either bidding will be very lukewarm, which means bids will rise to very little above the base price , or it’ll pick up but operators will pass on the cost completely to consumers. Neither scenario is preferable for the government,” said Putcha.

“I wouldn’t be surprised if the base price goes down because there’s more than enough resistance from various industry bodies, not only saying that the base price is too high, but also that their methodology is fundamentally flawed and this will actually cost a lot more than they’re making it out it will.”

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