Spectrum auction analysis

The Union Cabinet has approved mega auction of radio spectrum in various bands for commercial mobile services. Based on the recommendation of Telecom Regulatory Authority of India (TRAI), Government is planning to auction spectrum in the sub-GHz bands of 600, 700, 800 and 900 MHz; In the middle band of 1,800, 2,100, 2,300, 2,500 and 3,300 MHz, and in the high frequency band of 26 GHz. total spectrum to be Auction That’s about 72 GHz, compared to about 2.2 GHz last year. The cumulative reserve price – and hence the potential revenue accrual to the government at the reserve price – is around ₹4,31,605 crore as compared to ₹3,90,000 crore in the previous year. However, in last year’s auction the actual price was around 20% of the reserve price at ₹74,000 crore, with the 700 MHz and 2,500 MHz bands unsold. While the 2021 auction may be considered a failure from the auctioneer’s point of view, will the auction scheduled for this month be a success? There are many factors that determine the success of a spectrum auction.

reserve price

The first is the reserve price. Our research on the cross-country spectrum database shows that the reserve price is significantly and positively related to the winning bid price. However, a higher reserve price deters bidders from bidding for more spectrum blocks, resulting in less spectrum being sold. If the volume effect is greater than the price effect, it results in lower revenue for the exchequer, as was the case in 2021. The government has accepted the recommendations of TRAI on the reserve procedure in various bands, which is less than what is specified for it. Related bands last year. Although some bands are priced higher than in other countries, the average prices of newer bands such as 3.3 GHz and 26 GHz, at $0.02 and $0.0004, are in line with international prices on a per MHz per pop basis. However, the emerging diversity within each of the 22 LSAs (Licensed Share Access) makes it difficult for the bidders to ascertain the exact value of spectrum given the reserve prices. Hence, the uncertainty in the winning bid prices.

Second, the willingness of telcos to pay depends on their position in comparison to over-the-top providers that are providing substitute services such as Voice over Internet Protocol; and capturing a more mind-boggling share of customers while remaining relatively invisible to government regulators. However, the overall digital value of devices, connectivity and apps may be less willing to pay as a result of erosion of the position of telcos compared to OTT in terms of their relationship to the network.

5G enabled networks provide large-scale machine type communication, and ultra-reliable low latency communications that can be widely adopted by enterprise users in manufacturing, healthcare, and utilities. These requirements can be met by licensed telcos by building captive non-public networks (CNPNs) or by leasing/sharing the spectrum allocated to enterprises. However, TRAI has recommended that apart from these options, companies can directly lease spectrum from the government to build their own CNPNs, which is proving to be a thorn in the way for telecom companies. This is where telcos should move forward by tying up with managed service providers to enhance their enterprise offerings, which will result in demand for the 3.3 and 26 GHz bands in the auction.

What can we expect?

In our research on spectrum auctions held in different countries, we found that the reserve price and the number of bidders in the auction have a positive effect on the auction. Both these factors have been subtracted from the previous auction. In fact, the number of bidders in the 2016 auction was now seven, compared to three. Therefore, we expect the winning bid prices to decrease accordingly. However, our analysis shows that the total amount of spectrum put up for auction has a negative impact on the winning bid price. As the amount of spectrum in this auction is about 35 times higher than last year, including new bands in 600 MHz, 3.3 GHz and 26 GHz, we expect this to have a significant negative impact on spectrum prices. On the other hand, elimination of annual spectrum usage charges and deferred payment option for all spectrum purchased in this auction encourages the bidders to be active in the auction.

In last year’s auction, out of a total of 141 offers, all 108 sold were at reserve prices. We don’t expect much divergence this year either. Hence, the reserve price is expected to dominate the minds of the bidders once again in the coming months.

V. Sridhar is a professor at IIIT Bangalore. Rohit Prasad is Professor at Management Development Institute, Gurugram