Without the defence and telecom ministries cooperating, the spectrum auction target simply cannot be met
With BSNL finally issuing orders worth R8,700 crore to work on completing the long-delayed—the MoU for this was signed way back in 2009—optical fibre network for the defence forces, the stage is all set for defence vacating the very large tranches of commercial spectrum they are currently using. While creating the network will still take another 18-24 months, finance minister Arun Jaitley needs to get the defence forces to release some valuable spectrum that, it has to be pointed out, they are not using at the moment, but remains under their control. There is a larger issue of a clean separation of defence and commercial spectrum, but that is not the subject of this column.
This column is about how Jaitley’s targets from spectrum auctions cannot be met unless he gets both the defence—relatively easier, since he is in charge—and telecom ministry to cooperate. Some simple maths makes this clear.
* Since the government gets roughly R18,000 crore a year in terms of spectrum charges, licence fees and microwave charges anyway, Jaitley needs another R27,000 crore from spectrum auctions during the year.
* Since the terms of auctions—assuming they are similar to the ones held last February—require firms to pay a third up-front, get a two-year moratorium, and then pay the rest over 10 years, this means the government needs to auction roughly R81,000 crore worth of spectrum before March 2015.
* A total of 184 MHz of spectrum is coming up for renewal in December 2015 in the 900 MHz band, so needs to be auctioned by this December. If you assume that this spectrum gets auctioned at a price that is 20% higher than what it was sold for in the 2010 auction, this gives the government R26,600 crore. Since a fourth of the 900 MHz bid price has to be paid up-front, the government would get R6,650 crore.
* A total of 104 MHz of spectrum in the 1800 MHz band is with the government and can be auctioned again this year. Since 78 MHz of this is left over from the February auction, presumably this means telcos don’t really want this—much of this spectrum is fragmented and is fine for voice traffic, but for data traffic which is the one really growing, telcos need at least 5 MHz of contiguous spectrum. But, to be optimistic, assume all of this gets bought at the February price, that’s R8,250 crore the government gets, and R2,750 crore immediately.
There is the 800 MHz spectrum that can be auctioned, but given the back and forth between the DoT and Telecom Regulatory Authority of India (Trai), the auction may not happen. CDMA players are keen on an auction since they can offer 4G services in it, but Trai is not in favour of auctions since the spectrum available for auction is fragmented and will lower its price—the ministry, however, thinks the consolidation is not that important. Either way, not more than R3,000 crore can be got up front for the spectrum available.
The one-time penalty of R14,000 crore that telcos are supposed to pay for regularising their spectrum holdings of over 6.2 MHz is an option—there is no point including BSNL and MTNL’s penalties since the government will have to lend them to pay their share—but only a theoretical one. All telcos are in court on this, and there is no telling when this will materialise.
On the other hand there is great demand for 3G spectrum in the 2100 MHz band, given the way data traffic is growing, and the huge holes in the networks of each and every operator—Bharti has no 3G spectrum in 9 circles, Vodafone 13 circles, Idea 11 and RCom 9 circles. Theoretically, telcos can use 1800 MHz spectrum for their data traffic, but there are very few circles where there is enough contiguous spectrum. The telcos can also use their 900 MHz spectrum for data services, but if they are to do this, what do they do with their voice customers? Theoretically, these can be migrated to the 1800 MHz band, but that is a time-consuming business and has commercial implications too.
What Jaitley needs then, is to be able to get this spectrum for auction. Problem is, 40 MHz of 3G spectrum in 2100 MHz band is occupied by defence—just 20 MHz has been auctioned to telcos. Given how little use BSNL and MTNL are making of their 3G spectrum, one option is to get them to release 5 MHz—while that will fetch a bid of R16,700 crore at the 2010 prices, the money is best used by BSNL-MTNL; besides, if they don’t have 3G spectrum, they are not going to be able to have much business in the future.
What is possible to do in the meanwhile is to look at the 1900-1907.5 MHz and 1980-1987.5 MHz bands that the defence forces occupy and get them to swap this with 1939-1954 MHz spectrum—the downlink for this is 2129-2144 MHz which is currently unoccupied—which releases enough spectrum for Jaitley to get around R50,000 crore for, or around R17,000 crore up front, enough to meet his targets.
The problem here is the 1900-1907.5 and 1980-1987.5 bands have been reserved by DoT for expanding CDMA services as an extension band, just like 1800 MHz was kept for GSM once they exhausted their 900 MHz spectrum. There are, however, some vital differences. For one, existing CDMA devices don’t automatically work in this band unlike the GSM ones that worked on both 900 MHz and 1800 MHz. Two, when the Trai had its consultations earlier this year, RCom, one of the top CDMA players, had itself recommended freeing up this spectrum for 3G—RCom wanted a preference for CDMA players in the event this was auctioned, but its willingness to not object makes it clear CDMA telcos are not looking to expand their CDMA businesses. As for Tata Tele, the other big CDMA player, it has surrendered all spectrum beyond the 2.5 MHz which, the government said, was allowed as part of its initial licence. MTS, on the other hand, publicly stated its intent to go for 4G which operates in another frequency band. Jaitley needs to convince his telecom counterpart to drop the opposition to the swap.
But what if the defence doesn’t agree to the swap? Well, in the February auctions, around a fifth of the 1800 MHz spectrum auctioned was in blocks where the defence occupied tiny bits in a few localised areas—in other words, there is no fear of defence spectrum getting compromised by commercial telcos operating in neighbouring areas. In February, the DoT gave out ‘partial spectrum’ where some tiny areas were reserved for the defence forces, but commercial operators were allowed to use the spectrum in the adjoining areas in the state—defence usage is highly localised. As a fall back option, the same approach can also be used to release 3G spectrum in 2100 MHz band. Why waste a precious national resource that is not even being used, or is being used very sparsely by the defence forces?