Telecom operator body COAI to approach Trai on spectrum price recommendation

A day after Trai suggested a whopping Rs 5.36 lakh crore spectrum auction plan, telecom operators body COAI on Thursday said it will approach the regulator to understand the methodology it used to conclude recommendations.
“Our first point of call is to express to Trai why I believe, there may be an error in term of methodology they have used and process that they have come to this conclusion. We want to take a look at that,” Cellular Operators Association of India (COAI) Director General Rajan S Mathews told PTI.

Though Telecom Regulatory Authority of India (Trai) has explained the mechanism it used for calculating spectrum base price, COAI wants to re-confirm with the regulator if it has taken into consideration market conditions and financial conditions of telecom operators.
The total potential revenue of Rs 5.36 lakh crore from the spectrum sale, expected to be held during May-June this year, is more than double of gross revenues of telecom services industry. Telecom service providers had gross revenue of Rs 2.54 lakh crore in 2014-15 financial year.
The regulator has recommended record base price of Rs 11,485 crore per Mhz for 700 Mhz which alone. If all available frequencies gets sold at Trai suggested price then it can alone contribute over Rs 4 lakh crore.
Trai has used its old formula given in April 2012 spectrum price recommendation to fix price of 700 Mhz at four times of 1800 Mhz band spectrum price– widely known as 2G spectrum.
Most of telecom operators who have purchased 1800 Mhz band in 2012 or later are using it for 4G services.
For 1800 Mhz spectrum band, the regulator has used producer surplus model, production function model, revenue surplus model. It has considered its price achieved in 2015 auction and if that it not available then indexed previous auction price to come at tentative price.
Trai took higher of the two figures, median of price achieved through various calculations and last spectrum achieved price.
In telecom circles where where no spectrum was offered in March 2015 and February 2014 auctions, Trai considered reserve price at 80 per cent of average valuation. The regulator also lowered spectrum price where spectrum remained unsold in March 2015 auctions.
Leading operators had requested the regulator to defer sale of 700 MHz spectrum, saying that ecosystem for providing services in this band was not developed and sale would lead to underutilisation of the spectrum for several years and block industry’s crucial fund.
“The way 700 Mhz band has been priced looks out of the way in current financial situation because none of us knows what is going to be future of data revenue from that band,” Mathews said.
The regulator, however, said that some telecom operators have already started rolling out services in 700 Mhz band and 139 devices to support their service are already available.
“To hold the auction of 700 MHz band in India till the commercial networks are deployed in a larger part of world and consequent development of eco system/devices may not be a logical approach particularly in the context of Indian telecom service sector,” Trai said.
The regulator in April 2012 had already recommended that spectrum in 700 MHz band should be put to auction in 2014.
“The greater policy matter when should 700 Mhz be put for auction. There is M2M coming up, cloud computing, smart cities coming which are going to demand additional spectrum. Give us more time for both network and handset eco-system and also we have more clarity on what data revenue is going to be,” Mathews said.

The Department of Telecom is now studying Trai’s recommendation and final call on it will be taken by cabinet after completion of various intermediate steps.