High reserve price might drive away telecos from 5G spectrum auction

By NT Bureau Published on Aug 06, 2018 02:42 PM IST

New Delhi: The telecom industries have rarely disappointed the government. They have even outbid each other to buy spectrum at ridiculous prices at regular intervals.

But on a handful of occasions, telcos have refused to cooperate and some spectrum auctions have been failures. If the government accepts the regulator’s recommendations for the next spectrum auction, another failure seems to be on the cards.

"We expect the spectrum auctions to be a non-event," analysts at Edelweiss Securities Ltd wrote in a note to clients on 1 August.

Race is Real

Even if one company jumps in with bids to procure 5G spectrum, one or two others may follow suit, so that they are not left behind in the arms race for speed and efficiency. In such a scenario, the government will go laughing all the way to the bank.

Jio prefers to wait

But this looks like a highly unlikely scenario. If all the spectrum were to be sold at the recommended reserve price, the auctions would be worth over Rs 5 trillion, or as much as $ 78 billion.

About 45 per cent of this is for spectrum in the 700 MHz band, the price of which has been cut by about 40 per cent from the previous auction. But even after the cut, the cost involved in acquiring pan-India spectrum in this band is huge and telcos are likely to stay away.

Even Reliance Jio Infocomm Ltd, which seems to have no dearth of funds, is expected to prefer waiting for further cuts in spectrum pricing before participating.

Almost 30 per cent of the total spectrum on offer in value terms is the 5G spectrum in the bands above 3GHz. Even here, the price recommended by the Telecom Regulatory Authority of India (TRAI) is very high.

Govt needs to introspect

It is notable that the recommended price for the 5G spectrum on offer is over seven times of what was discovered in a recently held auction in South Korea for 3,500 MHz spectrum.

All of this begs the question as to why TRAI still wants to squeeze the life out of the operators at a time when they are already on their knees.

The government, which typically accepts TRAI’s recommendations, needs to introspect, too.

What experts say 

Some analysts say that a sharp drop in spectrum prices may lead to allegations of a fraud by government officials, leading to a cautious approach by the regulator.

But there are ways around this problem. Sticking with extremely high spectrum prices, unfortunately, shows that the regulator and the government do not care much about the financial health of surviving telcos.

What can 5G do?

The technology which is 1000 times faster than 4G, is a new generation and network architecture that will deliver extremely fast broadband at ultra-robust low-latency. At an industry-level, use of 5G technology may mean smart rads, smart cities and factories talking to each other.