India must release more spectrum, and curb greed for auction fees November 04 2014

By the RAN Service analyst team

Indian mobile operators suffer a constant struggle to secure sufficient spectrum, quickly enough, to meet exploding demand for cellular services. Slow regulatory processes, political disputes and auction scandals have made it a painful journey to launch 3G, let alone to support acceptable quality of service for basic 2G services. Major operators are calling for the Department of Telecom to accelerate the release of spectrum they acquired earlier this year, but now they face another looming challenge – hanging onto 900MHz licences which are due to expire in 2015.

Many countries have found ways to renew existing licences, usually in the 900MHz and 1.8GHz GSM bands, so that services are not disrupted, though with the higher of those bands increasingly being refarmed for LTE, and so gaining in value, such policies have sometimes been controversial. However, some Indian carriers – notably Reliance Communications, Vodafone and Idea Celullar - could face losing their 900MHz spectrum allocations in some regions, an outcome which would have a serious impact on their revenues.

According to data from telecoms regulator TRAI, RCOM, Vodafone and Idea could lose as much as 27%, 18% and 15% of their revenue respectively if they fail to buy back their 900MHz licences, which are due to expire in 2015, after 20 years. Rivals such as Bharti Airtel and new mobile entrant Reliance Jio Infocomm may look to outbid the incumbent owners to add to their own arsenals. For market leader Bharti, that would ease the strain on the coverage and QoS of its 2G network, while for Reliance Jio, there would be the opportunity to add wide area voice to the data-driven TD-LTE networks which it is building out.

The government plans to sell the expired 900MHz licences plus 1.8GHz blocks which went unsold in the February 2014 auction. The 2G spectrum on offer would cover 18 of the country’s 22 telecoms service areas, while 1.8GHz is available in all 22. However the GSMA this week echoed calls by TRAI not to conduct the auction until more spectrum can be offered and a successful process assured, after a series of disappointing and even corrupt auction results.

According to Morgan Stanley estimates, the Treasury could generate INR327bn ($5.3bn) from its planned sale, but the sum could be far higher if other frequencies are included, and that would also be more useful to spectrum-starved cellcos. TRAI recently suggested a reserve price of INR30.04bn for 900MHz and INR21.38bn in 1.8GHz, and Morgan Stanley believes the prices would be 16.5% and 5.7% higher, respectively, than those baselines.

TRAI wants the government to delay the auction until it can include additional spectrum, particularly in 800MHz and 2.1GHz, which would boost existing coverage and capacity for 2G and 3G and potentially help operators move towards FD-LTE (initial 4G services in India have been in the unpaired 2.3GHz/2.5GHz band, which favors high capacity data zones but is less suited to broad coverage). Its recommendations include swapping the 2.1GHz airwaves currently assigned to the military with another band.

The GSMA’s chief regulatory officer, Tom Phillips, backed up TRAI’s requests to include all the key 3G/4G bands, saying in a statement: “The next round of auctions should only be conducted once there is sufficient spectrum available for mobile in all key spectrum bands, namely 800MHz, 900MHz, 1800MHz and 2100MHz,” He also wants the DoT to make an early statement on its timeline for making 700MHz available for 4G.

And Phillips warned of the risks of mishandling next year’s auction. “Failure of the existing operators to retain their current spectrum, which is due to be relicensed as part of the auction process, would not only jeopardize their businesses, but threaten the continuity of the vital mobile services they provide to citizens across the country,” he said in a statement.

He added a word of caution about prioritizing Treasury windfalls over the operators’ ability to make a strong business case for bidding. “Governments around the world are increasingly cautious of setting high reserve prices. For example, the recent auction conducted by the Brazilian government failed to secure bidders for all the bands offered,” he said. “It is widely accepted that high reserve prices do not lead to higher final auction receipts, but instead to market distortions that threaten the ability of bidders to invest in their network.”

Meanwhile, Indian operators are having problems even activating the spectrum they have already acquired. Recently, the CEOs of Telenor and Vodafone called on the government to release the 1.8GHz frequencies their Indian subsidiaries bought in February and paid for in March.

Vodafone is eager to get its hands on its spectrum as it plans to invest $1bn in upgrading its Indian network and retail outlets, as part of its Project Spring global network initiative, which is being funded by the proceeds from selling its stake in Verizon Wireless. To boost ARPUs via better data services, the carrier aims to have 3G in every service area within two years, and will carry out its first LTE tests in early 2015.