In her budget speech, the Finance Minister Announced that the 5G auctions will be held in the upcoming fiscal year. The current note is an attempt to estimate the likely amount of spectrum that the operators can possibly take, and their outflows. For this analysis, I have made some assumptions which I plan to elaborate on in this note.
Total Spectrum Available For Sale
The following is the snapshot of the total spectrum in various bands which are likely to be offered for sale in MHz. Note, the spectrum in TDD bands (2300, 2500, 3500, 26000, 28000 MHz) are halved to align them with their FDD counterparts.
Also, note that the 40 MHz FDD (frequency Division Duplex) spectrum is also likely to be available, but in my view, in all possibilities, this spectrum might not be offered for sale. Even if the DoT did, there will be hardly any takers given that the 700 MHz (a more mature band) is fully available.
Assumed Reserve Price
The following table captures the assumed reserve price at which the spectrum in various bands will be offered. The link to the past reserve price is here. All these prices are in Rs Cr / MHz. Note that the prices of the TDD bands are doubled in order to align them with their FDD counterparts. In order to arrive at these reserve prices, I have made some assumptions. These assumptions/logic are described in subsequent sections.
Estimating Reserve Price of Non 5G Bands
700 MHz band — The prices have been assumed as 70% of the last reserve price for 2021 auctions. This I have done to align it with the reserve price of the 800 MHz band. After 2 rounds of failure, it is highly unlikely that the reserve price of this band can be anything more than this.
800 MHz band — The prices have been assumed the same at the last auction determined prices in those circles where spectrum got sold. And where it didn’t (i.e spectrum was not taken), I have reduced the reserve price of the 2021 auction by 20%.
900 MHz band — The same principle followed as the 800 MHz band.
1800 MHz band — The same principle followed as the 800 MHz band.
2100 MHz band — The same principle followed as the 800 MHz band.
2300 MHz band — The same principle followed as the 800 MHz band.
2500 MHz band — The same principle followed as the 800 MHz band.
Estimating Reserve Price of 5G Bands
3500 MHz band — To arrive at the reserve price of the 3500 MHz band I have used the following approach.
•Estimate the usable BW of 3500 MHz Band (3300–3670 MHz): 370 MHz
•Estimate the usable bandwidth of 1800 MHz Band: 2 x 55 MHz
•Calculate the Bandwidth Ratio : (55x2)/370
•Estimate the propagation ratio of 3500 MHz with 1800 MHz = 0.3
•Calculate LSA wise Reserve Price of 3500 MHz bands using a) Bandwidth Ratio; b) Propagation Ratio; c) Reserve Price of 1800 MHz
- Reserve Price of 3500 MHz = RP1800 x Bandwidth Ratio x Propagation Ratio = RP1800 x ((55x2)/370) x 0.3 = RP1800 x (0.089) (i.e. 11.2 times lower than the RP of 1800 )
Note I have used the same propagation ratio of 0.3 which TRAI had assumed in their earlier recommendation dated 1st Aug 2018. Now, Bandwidth Ratio is a new concept that I have introduced here to normalized the 1800 & 3500 MHz band on their quantum of available spectrum, as a higher quantum in 3500 MHz won’t necessarily translate into higher revenues.
26000/28000 MHz Bands — To arrive at the reserve prices of these bands I have used the following approach.
•Estimate the usable BW of 26–28 GHz (24250–28500 MHz): 4250 MHz
•Estimate the usable bandwidth of 3500 MHz Band: 370 MHz
•Calculate the Bandwidth Ratio: 370/3850
Now since these millimeter bands deployments are capacity-driven and not propagation-driven, and therefore we can drop the propagation losses. Hence, the RP of 26–28 GHz band can be arrived at from the bandwidth ratio of 3500 & 26–28 GHz band in order to arrive at the reserve price.
- Reserve Price of 26–28 GHz = RP3500 x Bandwidth Ratio = RP3500 x (370/4250) = RP3500 x 0.087 (i.e. 11.5 times lower than RP3500 )
Spectrum Price at Reserve Price
The following table provides a birds-eye view of spectrum price (Rs Cr) at the assumed reserve prices as described above.
Now if all spectrum is taken at the reserve price then the total outflow of the industry will be Rs 3.68 Lakh Cr. And Rs 92 K Cr (25% of Total) will be the upfront payment. Now, this seems to be very high, given the GOI budget estimated on receipt from the telecom industry (presented on 2nd Feb 22) at Rs 52 K Cr. This includes the license and spectrum revenue share.
In the last 4 quarters (Dec 20, Mar 21, June 21, & Sept 21) the total collection on license and spectrum fees as per TRAI is only Rs 23 K Cr. Assumes this will increase this fiscal by 10%, we can safely assume Rs 25 K Cr as license and spectrum fees to be paid by the operators. This leaves only Rs 27 K Cr for spectrum auction upfront payment as per the budget estimate.
Likely Auction Outflow
Now if one assumes that each of the 3 operators ends taking 100 MHz (50 MHz FDD equivalent) in the 3.5 GHz band, 400 MHz (200 MHz FDD equivalent) in 26 GHz band, and 200 MHz (100 MHz FDD equivalent) in 28 GHz band, then total outflows on account of these 5G bands at assumed RP comes out to be Rs 66 K Cr. Now for the operators to be within the Rs 27 K as per the BE they can spend another Rs 42 K Cr on non 5G bands. How? The calculation is = (27 — 0.25x66)/0.25 = 42.
Now, 3/4th of this amount (Rs 32 K Cr) will get consumed if the operators just take 10 MHz of spectrum (pan-India basis) in the 1800 MHz band. This means there is the very little amount left to buy anything in the 700 MHz band.
Conclusion
It is clear that the price of the 700 MHz (even if it is brought at par with the 800 MHz) will be still very high. Therefore, this time as well this band (700 MHz) will have no takers. This means, that putting the 600 MHz in the block is out of the question. Also, note that even this outcome (when a large quantum of 5G bands) is taken can only happen if the reserve price of 3.5 GHz is reduced to 11.2 times lower than the 1800 MHz band, and not just 3.3 times as it was recommended earlier. Also, the price of millimeter bands cannot be a simple translation from the 3.5 GHz band using the propagation ratio. For the prices to become affordable, the propagation ratio has to be ignored totally as explained above in this note. Note, even with all these corrections in the reserve prices, the industry still has to shell out a massive Rs 1 Lakh Cr for them to be empowered with a reasonable quantum of spectrum to roll out services.
(Views expressed are of my own and do not reflect that of my employer)
PS: Find the list of other relevant articles in the embedded link.
