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[News] Trai, DoT must rationalise spectrum reserve prices for 5G

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00:48, Sep-16-2018 | From Redmi 3S
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This post was edited by 1654363262 at 22:22, Sep-15-2018


August 2018, the Telecom Regulatory Authority of India (Trai) released recommendations for the auction of, and the reserve prices for, the 700, 800, 900, 1800, 2100, 2300, 2500, 3300-3400 and 3400-3600 MHz bands of telecom spectrum. The recommendations have important implications for the sector, not only because Trai is considering making more spectrum available but, more significantly, new 5G bands (3300-3600 MHz) will be auctioned for the first time.

In the last auction held in 2016, the 700 MHz, a highly prized band because of its ability to provide cost-effective coverage, did not attract any bids. Other bands also had a lukewarm response, despite the relatively lower amount of spectrum held by Indian operators with respect to global operators. The final bid prices were very close to the reserve price. The high reserve prices were cited as reasons for the outcome.

Historically, both market and reserve prices of spectrum in India have been high compared to other developing countries. A recent report from the industry body GSMA that tracked and analysed 1,000 spectrum assignments across 102 countries during 2010-17 has revealed that developing countries have higher spectrum costs and lower mobile service levels.

While high spectrum auction prices contribute to government revenues, in India, past auctions have contributed revenues below expectations and have created a high debt burden for the sector estimated at $76.9 billion. This has slowed the deployment of networks and technologies.

Trai’s method of arriving at the reserve price in many cases is based on linking it to the bid price in the previous auction. But the valuation and, hence, auction prices in subsequent years are not necessarily going to be higher than in the previous rounds. There are several factors that determine the valuation of spectrum, including the amount of spectrum available in different bands, expectations from the next round of auctions, band characteristics, amount of spectrum held by the bidder, state of the technology ecosystem, the business strategy and regulation such as spectrum caps per band or overall caps, rollout obligations, etc.

Right of Entry Reserved

Another aspect of Trai’s determination of reserve price is linking it with technical efficiency with respect to some other band, as was done for the 3300-3600 MHz band. Similar logic has been applied to estimating the 700 MHz reserve price, which is set at two times that of 1800 MHz.

However, auction prices are determined by considering more than just the technical efficiency of different bands. This is evident from the spectrum auction outcomes in other countries. For example, the per-MHz price in 700 MHz was lower than that in both 1800 MHz and 900 MHz bands in Germany in the auctions concluded in June 2015, and it was half the price of the 800 MHz band in auctions in Iceland in May 2017.

Another dimension of reserve price determination has been linking it to the winning bid of 1800 MHz band. While 1800 MHz is an important band for 4G LTE deployments, operators are actively acquiring the 3300-3600 MHz band as it allows for coverage-capacity tradeoff. Not only does 3300-3600 MHz provide for better capacity than the existing bands, it also allows higher coverage in comparison to other 5G pioneer bands in higher frequencies.

Consequently, countries seeking to encourage the offtake of 5G have kept low reserve price for this band. In India, the reserve price of this band, both in purchasing power parity terms and exchange rate, is higher than that in countries like Ireland, Spain, UK and South Korea — which had the highest reserve price — where auctions have concluded recently.

Given that the operators in most countries already have higher total bandwidth than with those in India, high spectrum costs are an additional burden for the latter. This is because, to manage with smaller bandwidths, operators have to deploy more equipment, in order to provide similar throughput or coverage. Additionally, the lower GDP/ capita for India will make it more difficult for Indian operators to be commercially viable.

Further, the lower smartphone penetration, at around 30%, albeit increasing, and the regulatory burden in terms of spectrum usage charges (SUC), and other levies that constitute nearly 30% of the revenues constrain the competitiveness of Indian operators.

The regulatory burden could be reduced by a variety of means. Recognising that the ecosystem in various bands has not reached similar levels of maturity, some governments are contemplating less onerous payment terms. For example, in Italy, in the auctions this month, winning bidders are expected to pay only 20% of the 700 MHz price upfront. The remaining is staggered with payments due in 2022, which is the estimated year when the ecosystem is expected to stabilise.

Auction Action

Additionally, since an important objective of auctions is to arrive at a market-discovered price, the reserve price should be kept at a fraction of the last auction price to allow for competitive bids. Lower SUC charges also reduce the regulatory burden.

With the existing high debt burden, and just three private operators, the market price for spectrum is likely to be subdued. It is imperative that Trai and the department of telecom rationalise the reserve prices.

Source:- VISIT

Disclaimer: This is a reproduced article and the copyright rests with the original author. The views in this article are not from MIUI News Team, or MIUI Global Forum. If there is any disagreement, please contact the Forum Management Team to delete it.
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11:55, Sep-16-2018 | From Redmi Note 4X
Thanks for sharing

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