Is the Plight of 700 MHz a Result of the Operator’s Misfortune or a Consequence of their own inAction?
The more I ponder over this topic, the more intense is my sentiment of frustration. And that too when one of the most important Sub GHz spectrum, the 700 MHz, is lying idle, unassigned, from the moment it was first offered for auction, i.e in the year 2016. At that time, 2x35 MHz was offered of the total available 2x45 MHz (2x10 was reserved for defense). The outcome of the auction was a lame duck, none could be sold, and then it was offered again in early 2021, with a similar outcome. With no interest from the operators, it became easy for the GOI (Government of India) to give away a valuable chunk (2x5 MHz) of this spectrum to the Railways. Also, recently DOT has informed the TRAI (page 5) that it is in the process of assigning another 2x5 MHz to NCRTC for their LTE-based RRTS System. With this, the total quantum of spectrum available in 700 MHz for commercial use stands at 2x25 MHz (55% of the total possible). Now, the reason this discussion is important is as 700 MHz is an extremely important band to deliver quality 5G services and the operators will need larger chunks of it compared to 4G. Please read — “ 5G in India — The Real Challenge”.
The Background
In order to understand what led us to a situation like this, we need to go back into history. In India, spectrum is valued at Par with Gold, Diamond, or a Rare piece of Art — the price of which is driven by sentiments but not by true economics. Hence, most “spectrum” lay unused both in the hands of the government and the operators. The government didn’t want to part with it without being compensated adequately, and operators holding it couldn’t use it optimally as it made no business sense to do so (especially in rural areas), and that too after having paid for it through their nose. Hence, the spectrum in India largely lay fallow — a large chunk of it with the government since the beginning. Every time all of it will be offered for display (like expensive pieces of art) in the auction (especially true for the last 2 auctions), and operators will end up taking a fraction at the reserve price — transforming the auction process into nothing but an administrative assignment. But an attentive reader might ask, that when most higher spectrum bands have been largely taken (slowly & incrementally) then what is so special about the 700 MHz band? For that, we have to dive right into history.
The 700 MHz (History)
In the year 2012, as a part of its recommendation, the TRAI unilaterally decided to value the 700 MHz, that too when its band plan was not finalized. A band plan is important for arriving at an intrinsic value of a band that emanates from economies of scale from countries using a similar band plan. In other words, we were completely dark about this important subject at that time. Also strangely, the TRAI used totally different logic to arrive at the reserve price for the 700 MHz, compared to what it used for valuing other spectrum bands at that time. Not only that TRAI committed a serious mistake of using a wrong multiplying factor of 4 than of 2.3 — the factor that emanated out from their own logic.
Though it didn’t matter at that time, however, later in the 2016 recommendation the TRAI picked up its earlier recommendation of 2012, totally out of context, and multiplied the 1800 MHz reserve price by 4 (as decided by TRAI in 2012) to arrive at the reserve price of 700 MHz (Clause 3.75 Page 97 of TRAI Reco dated 27th Jan 2016). It did not even refer to the fact that all pricing recommendations of TRAI in 2012 (800, 900, etc) were later revised (lowered) by the DoT (700 MHz band price was left untouched by DoT as it was not up for auction), and also TRAI in its recommendation dated 9th Sept 2013 (page 85) concluded that valuation of spectrum in India cannot be done on the basis of international prices.
Therefore it is natural to ask these questions — a) that since in 2012 (page 104, dated 23rd April 2012), when the TRAI recommended the factor of “4” based on international spectrum prices, then why in 2016 the TRAI choose to refer to the faulty recommendation of 2012? b) Also, at the time (in the year 2012, as mentioned above) when this decision for the multiplier factor of “4” was taken, the DoT didn’t even finalize the band plan for 700 MHz (page 28 of TRAI’s recommendation dated 15th Oct 2014). c) And without a specific band plan how can one decide on an intrinsic value of any spectrum?
Due to the above reasons, the price of the 700 MHz band become so high that the operators decided to give it a pass in 2016 and even in 2021 when TRAI decided to reduce the band price by 50%. A bad outcome for India and its citizens. The reason — 700 MHz could have been used to connect rural India for its better propagation characteristics. I had described these issues in my earlier notes titled — Is TRAI’s 700 MHz Price Outcome of an Inadvertent Error? (28th Jan 2016) & Pricing Rationale of 700 MHz (19th April 2016).
Operator’s Role
The operators largely remained passive, they did not come out and challenge TRAI’s faulty recommendations (calculation error) on 700 MHz. If you do a google search, you will find hardly any articles pointing to this mistake and seeking a revaluation. I was probably the first to bring this error into the public domain on 28th Jan 2016, just a day after the TRAI recommendation dated 27th Jan 2016. Articles if any were done by independent consultants/editors, but without any quotes from the operators. What could be the reason for the operator’s passiveness? Possibly there were too overwhelmed by the need to acquire spectrum in other bands — 800,900, 1800, 2300, etc. For them, the 700 MHz was a luxury and not a necessity at that point in time. But not anymore, as we know without 700 MHz spectrum, that too in large quantum, rolling out high quality 5G networks will be difficult.
Hence, recognizing this fact, some operators, in the recent consultation process in TRAI, did ask for a sharp reduction in the price of 700 MHz. However, their views did not converge even this time, as some other operators wanted the price of the 700 MHz to be pegged at least the level of 800 MHz. Their possible reason could be that they did not want their investments in 800 MHz to get undermined. But this stand looks counterintuitive to me. As the price of 700 MHz cannot be referenced to 800 or 900 MHz, since these bands are 4G bands and will continue for some more time, whereas 700/600 MHz you need at least a 2x15 MHz chunk to roll out a good quality 5G service. And therefore per MHz price does not apply in the same manner as it did for the 4G bands, as the larger quantum of spectrum in 5G (compared to 4G) does not necessarily translate into higher revenues proportionately.
TRAI’s Constraints
In my view, the current TRAI did a reasonably good job in valuing spectrum prices compared to what they did in the past. But they were severely constrained by the past references set by their predecessors. It is unfair to expect a radicle shift in their pricing strategy given their past approaches for so many years were never contested by the operators through alternative approaches and models. All we hear in the press is a blanket statement by the operators — “TRAI reserve prices are high and need drastic reductions”. But how the prices can be bought down, and what alternate models can be used is never gets put out explicitly on the table. Those interested in understanding TRAI’s current pricing approach and how it differs from the past can read my earlier note — “Indian 5G Spectrum Pricing — Opportunities & Challenges”.
The Risks
The risks are real— A) that due to the high prices of 700/600 MHz, this band will likely go unsold. Note 2x15 MHz of 700 MHz at the current reserve price will cost Rs 60k Cr. Hence, without any Sub GHz spectrum, any 5G that gets deployed will be patchy, and incomplete. And voice will continue to run on 4G and we have to continue to live will the current poor voice quality, where we can’t even complete a min of a call without saying — “You are breaking, I lost you, please say that again”. B) Due to 700 MHz remaining unsold in past auctions, we have already lost 45% of this band to PSUs. God knows how much will get extracted in the future if this band continues to remain fallow. C) And since the 600 MHz band is still new and has an ecosystem not comparable to 700 MHz and 2x10 MHz (20%) already reserved for BSNL, and if the 700 MHz band gets opened later with the much-reduced price & reduced quantity, then it might get heavily contexted — resulting in a price rise (we have already experienced a similar situation in past in 2100, 800, 900 MHz band).
Conclusion
I think the above discussion might have explained the magnitude of risk of keeping the spectrum fallow, both to the operators and the consumer. But it also underlines the need for responsible and high-quality advocacy with facts and figures. Had the price of the 700 MHz got corrected in 2016 itself we would have seen demand in that year itself. And India and its consumers (especially rural) could have benefited from it due to its better reach (in-building penetration) and propagation characteristic.
(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.
