Indian 5G Auction — Increased License Period From 20 to 30 Years

We know that the cabinet in its package has announced an increased period of spectrum granted through auctions from the current 20 years to 30 years (refer to item no.5 in structured reform in the PIB press release dated 15th Sept 2021). Now, this poses a peculiar problem that TRAI (currently deliberating spectrum prices) has to deal with. Why? Increased license period calls for an increase in reserve price, which is already high, and therefore will be in contradiction to the intent of the GOI reforms. The purpose of the current note is to find a solution to this vexing problem.

Operator’s Narrative

The increased license period must not necessarily raise the valuation of the spectrum. The reason — a) Current technologies are evolving exponentially, and therefore will significantly increase the cost of depreciation — impacting profitability; b) Investment cycle in new technologies and equipment is shrinking; c) Due to (a) & (b) valuation of spectrum must not increase in the same proportion as the period of the license.

Govt’s Possible Counter

Keeping the reserve price the same for both 20 & 30-year licenses appears counterintuitive. The reasons — a) Spectrum if auctioned after the 20 year license period will fetch the govt some non zero value, just like it did in 2014 & 2015 auctions; b) Operators will have more flexibility to plan their business and therefore must pay a higher price for accessing this advantage.

Possible Solution

Now, it looks to me that it will be very difficult for the GOI to justify the same reserve price for both 20 & 30 years licenses. As any logic used will NOT appear to be robust and convincing. Therefore, in my view, the GOI can hold the auction at a reserve price of spectrum for the current 20 year period, and give an option to the bidder to choose and pay a proportionate additional amount for the increased period of 30 years if he so decides. In other words, the bidder not choosing the 30 year period will pay will end up paying the same amount which emanated out of the auction (spectrum with a 20 year period).

Conclusion

Giving an option to the bidder to choose between a 20 and 30 year period will create a win-win situation. As it will reduce the strain on the operator who is financially constrained and will also not impact the ability of the operator to take the benefit of the current GOI reforms of an increased license period. Forcing an operator to choose a 30 year period at a higher price will be totally against the intent of these reforms.

(Views expressed are of my own and do not reflect that of my employer)

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