Background
In its judgment dated 2-2-2012 the Supreme
Court has cancelled the 122 licenses for 2G spectrum issued in 2008. It
directed the TRAI to submit recommendations for the auction of the spectrum
that would be freed due to the cancellation of these licenses. The TRAI
initiated the consultation process and released a consultation paper on the
issue of the auction of the spectrum. Various stake holders including the private operators and their Associations, some individuals have submitted
their views to the TRAI on its consultation paper. The BSNL Employees Union
also submitted its views to the TRAI. After going through all these responses
and after organizing an open house session to know the views of the stake
holders directly, the TRAI finally released its recommendations on the auction
of spectrum, on 23-4-2012.
Present status of spectrum allocated to various
telecom operators
These recommendations of the TRAI were submitted to
DoT and consist of 176 pages. It is a very difficult to understand these
recommendations unless we know the present status of the spectrum allocated to
the telecom service providers.
a)
The
spectrum allocated so far is in the following bands:
i)
800
MHz band- for 2G services only by using CDMA technology
ii)
900
MHz band-for 2G services only, by using GSM technology
iii)
1800
MHz band-for 2G services only, by using GSM technology
iv)
2100
MHz band—for 3G services
v)
2300
MHz band—for BWA services
b)
Allotment
and licence period
i)
Initially
2 operators were allowed in each circle 1994 and thereafter to provide mobile
services.
ii)
Subsequently
MTNL and BSNL were allowed as 3rd operator in each circle to provide
mobile services.
iii)
These
3 operators i.e the first two operators allowed in each circle and the MTNL(in
Delhi and Mumbai) and BSNL (in all circles except Delhi and Mumbai) were
allotted 2G spectrum in 900 MHz band initially and when the spectrum in 900 MHz
band was no more available, they were allocated further spectrum in 1800 MHz
band.The entry fee collected from the first and second operators who were
private operators was nominal. The entry fee collected from MTNL and BSNL who were
the 3rd operator was nil sice they were PSUs.
iv)
Licenses
were issued to the 4th mobile operator in each circle in 2001 and
mostly they were allotted 2G spectrum in 1800 MHz band. The entry fee decided
by bidding for pan India license(license for all the 22 circles) was Rs 1600
Crore plus.
v)
Subsequently
some more operators were allowed with the same fee of Rs 1600 Crore plus for
pan India license. Licenses were issued along with the contractual spectrum.
The contractual spectrum was 6.2 MHz in 900/1800 MHz band(GSM) and 5 MHz in 800
MHz band (CDMA). Further spectrum was allowed until 10 MHz depending upon the
number of subscribers.
vi)
In
2008, when A.Raja was the Communications Minister, 122 licensees were issued on
first-come-first served basis and even this principle itself was distorted by
pre-poning the last date for receipt of applications subsequently. The entry fee
collected for all licenses including for those issued in 2008 was only Rs 1600
crore for all the 22 circles, which was the fee decided in 2001.This collection
of the 2001 rate in 2008 without auction was the basic reason for the 2G
spectrum scam. If auction was held, Government would have got about Rs 1,76,000
crore.
vii)
Due
to the non-availability of adcequate spectrum, these new entrants of 2008 were allocated 4.4 MHz spectrum in 1800 MHz
band.
viii)
The
Supreme Court cancelled these 122 licenses and spectrum allotments terming the
allotment of license on first-come-first-served basis as illegal and directed
for auction of the spectrum freed due to cancellation of these licenses.
ix)
It
is to be noted that the licences are given on circle basis, at the rate of one
license for each circle. If a private operator wants to take license for all
circles in India, it ahs to take 22 licenses at the rate of one license per
each circle. But MTNL is restricted to 2 circles only (Delhi and Mumbai) and
BSNL is restricted to 20 circles( All opther circles except Delhi and Mumbai).
Therefore MTNL has 2 license and BSNL has 20 licenses. The privatee operators
present in all circles will have 22 licenses.
x)
The
licenses were allocated for a period of 20 years. Airtel, Vodafone who were
given licenses in 1994/1995/1996 in many circles are completing 20 years and
hence their licence period will be over by 2014/15/16 etc. MTNL was allotted
mobile license in 1997 and hence its license period would be over by 2017. BSNL
was allotted licenses for all circles in 2000 and hence its license period will
be over by 2020. The Companies have to renew their license again after
completing the 20 year licensee period by paying the required enty fee.
xi)
The
auction for 3G spectrum (in 2100 MHz band) and for BWA spectrum ( in 2300 MHz
band) took place in 2010 and the 3G spectrum price obtained by the Government
in the Auction was Rs 16570 crore for all the 22 circles. This means any
company acquiring licenses for 3G services in all 22 circles ahs to pay this
amount of Rs 16570 crore. The price discovered in total for all the 22 circles
for BWA spectrum was Rs 12846 crores. In the 3G and BWA spectrum auction the
Government got a total amount of Rs Rs 1,06,000 crores.
xii)
The
Companies that got 3G and BWA spectrum in 2010 are entitled for that spectrum
for 20 years until 2030.
Issues arising now
i)
Since
the Supreme Court ordered that the spectrum should be allotted only through
auction, hereafterwards any company has to acquire spectrum through auction
only.
ii)
For
the Companies like Airtel, Vodafone etc whose licenses in many circles are
expiring by 2014/2015/2016, they have to obtain spectrum through auction.
iii)
For
the Companies like Uninor, Systema, Etisalat whose licenses were cancelled by
the Supreme Court, if they want to continue, they have to obtain the spectrum
through auction.
iv)
MTNL/BSNL
licenses would expire in 2017/2020 respectively and at that time they have to
obtain spectrum through auction.
v)
The
spectrum allotted in 800/900/1800 MHz bands previously was for providing 2G
services only by using CDMA/GSM technology. Now the spectrum in these bands can
be utilized to provide mobile broadband and other advanced services by using
HSPA and LTE technologies etc. But this cannot be done unless the license
condition is liberalized. Thus the issue of spectrum liberalization has come
forward.
vi)
The
spectrum bands below 1000 MHz i.e spectrum in the bands of 700/800 and 900 MHz
is more valuable than the spectrum in the above 1000 MHz band i.e than the
1800/2100/2300 MHz band. This is because the spectrum in the bands below 1000 MHz band enables the spectrum
holder to provide advanced wireless broadband services with less capital
expenditure than the spectrum in the above 1000 MHz bands. But the below 1000
MHz band spectrum in 800/900 MHz band was available with a few operators only
where as others are having spectrum in 1800 MHz band only. If they are allowed
to provide advanced mobile broadband and other advanced services by
liberalizing spectrum, it will put them in advantageous position and all other
companies would be at a disadvantaged position. Therefore before liberalizing this
below 1000 MHz band spectrum, it has to be taken back from its hoders and then
auctioned. This taking back of the valuable spectrum in 800/900 MHz band
spectrum from the operators having it so that it can be auctioned and made
available to all interested in purchasing through auction, is called as “spectrum
refarming”.
vii)
BSNL
is having 900 MHz band spectrum in 6.2 MHz quantity in almost all circles.
Airtel and Vodafone are also having this 900 MHz band spectrum in several
circles. Through the process of refarming, this valuable spectrum has to be
taken back from them. But how it can be taken back unless their license period
will be over? This is a question to be decided.
viii)
If
900/800 MHz band spectrum is to be taken back from the operators having it, in
its place the 1800 MHz band spectrum has to be provided to them in equal
quantity. How this is to be done? How much quantity of spectrum can be made
available in 1800 MHz band for this purpose?
ix)
Since
700 MHz band spectrum which is the highest quality spectrum, is not allotted so
far, how and when it can be allotted?
x)
Since
the spectrum in any band has to be allocated by auction only, what should be
the reserve price per MHz quantity of spectrum in each band while putting it
for auction?
xi)
How
much spectrum can be allotted to the bidder in each band?
xii)
When
the auction in each band has to be conducted?
These are some of the issues which
have to be answered by the TRAI while making its recommendations on the auction
of spectrum.
TRAI’s recommendations
The TRAI, after consulting all the
concerned and studying the issues based on such consultation, submitted its
recommendations to the DoT yesterday, on 23-4-2012. The following are the
important points in these recommendations:
1. All spectrum to be assigned through
auction in future shall be liberalized. That is, spectrum in any band can be
used for deploying any service in any technology.
The
implication is any body who acquires the spectrum in any band, can utilize it
for providing not only 2G services, but also all advanced services using
suitable technology. Thus the Companies who will acquire the spectrum in 1800
MHz band now in the auction can provide advanced mobile broadband services etc
using suitable technologies.
2. The Authority recommends that the
Service providers may be allowed to convert their existing 1800 MHz spectrum
into liberalized spectrum on payment of the auction determined amount in which
case they will be granted spectrum for a period of 20 years. They will be
allowed to adjust the price paid by them for the existing spectrum on pro-rata
basis for the period of the existing license.
The
existing operators are having 1800 MHz band spectrum and it is available for
them till the end of their license period, whether it is upto 2014/15/16 (in
case of Airtel, Vodafone etc), 2017( MTNL) or 2020(BSNL). But as per the
existing license condition it can be used for providing 2G services only and
cannot be used for providing advanced wireless broadband services etc. On the
other hand the Company which acquires this band of spectrum now in the auction
can utilize it for providing advanced services. To allow the existing operators
also to provide the advanced services using the spectrum in this band, the TRAI
laid down the condition that the existing operators have to pay the price
determined in the auction for the spectrum held by them and they will be
allowed to hold it for another 20 years and the amount already paid earlier by
them for acquiring the spectrum would be adjusted on prorate basis against the
amount to be paid by them on the basis of the price decided in the auction.
3. The Authority recommends that the
Reserve Price for the 1800 MHz spectrum shall be circle wise with pan India
spectrum reserve price of Rs 3622.18 crore per MHz.
(For BSNL,
if it wants its spectrum in 1800 MHz band to be liberalized, each MHz reserve price
will be Rs 2202.78 crore per MHz, excluding Delhi and Mumbai. What ever is the
price derived in the auction on this basis, it has to pay for liberalization.Other
wise it cannot provide advanced services using the spectrum it has in 1800 MHz
band and it has to be satisfied with providing 2G services only on this band
until 2020, whereas other operators will be providing advanced services also. BSNL
is having 4.4 MHz quantity of spectrum in 1800 MHz band spectrum in all circles.
The TRAI fizxed the reserve price of 1800 MHz band spectrum at a higher level
than 3G spectrum because advances services can now be provided on this 1800 MHz
band spectrum more economically compared to the 3G spectrum in the 2100 MHz
band.)
4. Refarming of spectrum in 800 MHz and
900 MHz bands should be carried out progressively at an early date but not
later than the due date of renewal of the licenses. The spectrum available with
the service providers in the 900 MHz band should be replaced by spectrum in
1800 MHz band, which should be charged
at the price prevalent at the time of refarming.
5. The Authority also recommends that
the Government must actively explore the possibility of refarming of the
spectrum in 900 MHz band immediately, by invoking the authority to change the
license conditions.
BSNL and MTNL are having spectrum in a quantity of 6.2 MHz in
each circle in 900 MHz band. Airtel and Vodafone are also having spectrum in
this 900 MHz band in many circles. Almost all other operators are not having spectrum
in this band. Since this is a highest quality spectrum, it has to be
refarmed(taken away) from them so that it can be auctioned. But it can be done
only at the time of renewal of their licenses which will be in 2014/15/16 for
Airtel and Vodafone, in 2017 for MTNL and 2020 for BSNL. This is one option.
Whether such a valuable spectrum should be restricted to provision of 2G
services only until their license period is over? Therefore the TRAI is
recommending the Government to actively explore the possibility of refarming of
the spectrum in 900 MHz band immediately, by invoking its authority to change
the license conditions. Assuming that the Government does this, then what will
be the scenario for BSNL and MTNL? They are to be provided spectrum in 1800 MHz
band in the place of the 900 MHz band spectrum that will be taken away from
them and they have to pay the price for the 1800 MHz spectrum decided by the
auction. What is the compensation that would be given for taking away the 900
MHz band spectrum from them, is not known. Airtel and Vodafone who have this
spectrum until 2014/15/16 have to surrender it by that time for its refarming.
The problem is not so big for Airtel and Vodafone since their license period
will be over by 2014 etc. But in case of BSNL it would be nothing but wasting
of the 900 MHz band quality spectrum if it is confined until 2020 only for 2G
services. At the same time if it is to be refarmed immediately, it will be
expensive for BSNL.
6. The Authority recommends that the
DoT should immediately arrange to allocate spectrum in the 1900 MHz band for
refarming the spectrum in 800 MHz band. The Authority recommends that the DoT
should immediately carry out the interference study. The spectrum in the 800
MHz band should progressively be refarmed at the time of renewal of licences of
such operators.
The spectrum in 800 MHz band is at present
used for providing 2G services only by using CDMA technology although it is a
high quality spectrum band on which the advanced services can be provided by utilizing
suitable technologies. Just like 900 MHz band spectrum, the TRAI recommends for
its refarming. To do this, the TRAI recommends to give 1900 MHz band spectrum
to the Companies from whom the 8900 MHz band spectrum would be taken back in
the refarming. At the time of their renewal of licenses.Only a few of the
licenses in 800 MHz are expiring between 2015 and 2018. Most of these licenses
are expiring in the year 2020(PSU) and 2021.
7. The Authority recommends that the
auction of spectrum in 700 MHz band may be carried out at a later date,
preferably in 2014 as and when the ecosystem for LTE in the 700 MHz is
reasonably developed, so as to be able to realize the full value of the
spectrum.
Among
the high quality spectrum bands of 900,800 and 700 MHz bands, this 700 MHz band
spectrum is of the topmost quality. By using this spectrum band, high speed
wireless broadband services can be provided in rural areas with lowest
investment for equipment as well as terminals. But the spectrum in this band is
yet to be allocated. Moreover, the equipment and terminals for deploying this
technology are not yet available in large quantity for which some time is
required. Hence the TRAI recommended for the auction of the spectrum in this
band in 2014.
8. The TRAI recommended the reserve price for 1 MHz quantum of
spectrum in the following bands at the following rates:
i)
1
MHz spectrum in 2300 MHz band –for all circles together-- Rs 723.52 crore
ii)
1
MHz spectrum in 2100 MHz band –for all circles together— Rs 3773.24 crore
iii)
1
MHz spectrum in 1800 MHz band –for all circles together— Rs 3622.18 crore
iv)
1
MHz spectrum in 800/900 MHz band –for all
circles together— Rs 7244.36 crore
v)
1
MHz spectrum in 700 MHz band –for all
circles together— Rs 14488.52 crore
9. In all auctions atleast 5 MHz shall be
offered, except where the spectrum available is less than 5 MHz.
This
means that in each circle, in any band, atleast 5 MHz quantity of spectrum has
to be offered. As per the above mentioned reserve prices, the reserve price for
the minimum 5 MHz quantity of spectrum in 1800 MHz band for all circles together will be 5x3622.18=18110.90
crore and in auction it is likely to be increased further by the bidders. If
BSNL has to liberalize its spectrum in 1800 MHz band, it has to pay any where
above Rs 45000 crore, which will be a heavy burden on it.Same rule is
applicable for the spectrum in other bands also.
10. The Authority recommends the
following schedule for deferred payment of the bid amount by the successful
bidders
|
Spectrum
|
Initial Payment
|
Moratorium
|
Period for balance payment
|
|
Supra-1 GHz band (1800,2100 and
2300 MHz bands)
|
33% of the Bid amount
|
2 years
|
10 years(equal annual instalments)
|
|
Sub-1GHz bands (700,800,900 MHz
bands)
|
25% of the bid amount
|
2 years
|
10 years (equal annual
instalments)
|
While
this deferred payment is available for the biders, what about the existing
operators, say BSNL, which has the present license period upto 2020, if they
want to liberalize their spectrum in 1800 MHz band? Whether they will be
allowed deferred payment? It is not clear from the recommendations.
11. The following is the sequence of the
spectrum auction:
a) 5 MHz of 1800 MHz band—In 2012-13,
as early as possible, to establish the market value of the spectrum.
b) Allocation of additional 1.25 MHz of
spectrum to the holders of 4.4 MHz in 1800 MHz band, subject to legal opinion.
c) Auction of spectrum in 800 MHz band—should
be done in the current financial year
d) Auction of 900 MHz band spectrum—This
should be conducted in the first half of 2013-14 preferably in the first
quarter so that there is adequate time for deployment as and when 900 MHz
spectrum is available by November 2014.
e) Balance spectrum in 1800 MHz—in the
first half of 2013-14
f) Auction of spectrum in 2100 MHz band—should
be carried out in the second half of 2013-14
g) Auction of available spectrum in 700
MHz band—should be carried out in the first half of financial year 2014-15
h) Auction of additional spectrum in
2300 MHz band—This should be carried out in the second half of the financial
year 2014-15
(Does
this mean that the BWA spectrum surrendered by BSNL would be auctioned then
only and the amount would be returned there after only?)
12. The authority recommends that the
Department of Telecommunications should engage an auctioneer for aperiod of 3
years so as to conduct the auctions without delay.
13. The authority recommends that
mortgage of spectrum may be allowed by spectrum holders to a registered Indian
financial institution against borrowings. The mortgager will be subject to the
condition that in the event of default of the liability, the spectrum shall be
auctioned by the financial institution under the supervision of the DoT and all
proceeds in excess of the liability shall be remitted to the Government.
14. The Authority recommends that DoT
must take up with the Ministry of Finance and the Reserve Bank of India to
remove all the road blocks in the frame work for borrowings by the telecom
sector against the spectrum assigned to them.
15. Rollout obligations as below:
|
Time
|
Villages having population
>10000
|
Villages having population
5000-10000
|
Villages having population
2000-5000
|
|
2 years from effective date
|
100%
|
50%
|
-
|
|
3 years from effective date
|
100%
|
100%
|
50%
|
|
4 years from effective date
|
100%
|
100%
|
100%
|
For
the existing licensees, the authority recommends that they should be given one
more eyar to complete the two years rollout obligations and two years to
complete the third and fourth year roll out obligations from 1-4-1012.
16. The Authority recommends that the
validity period of the spectrum should be for 20 years.
The Impact on BSNL and MTNL and private
operators
From the above, it is clear that for the
liberalization of 1800 MHz band spectrum, enabling it to provide advanced
services on that band, it has to pay to the Government any where above s 45000
crore which would be a heavy burden on it. If it does not want to have its
spectrum liberalized, it has to continue the 2G services on the 1800 MHz band
until 2020 without utilizing it for the advanced wireless broadband services
where as others would be utilizing that band available with them for providing
the advanced services and it will result in subscribers migrating from BSNL.
MTNL also will face similar problem. The private operators Airtel, Vodafone as
well as the Uninor etc, all are criticizing the reserve price fixed by the TRAI
for the auction of spectrum in various bands, especially in 1800 MHz band as
too high. The existing operators Airtel, Vodafone have to procure spectrum
again in 2014/15/16 when their license period of 20 years would be over, at the
rate based on the price that would be found out in the auction to be held, with
a reserve price of Rs 18110 crore for 5 MHz spectrum in 1800 MHz band for all
the circles. At this rate, they have to pay huge sums for acquiring spectrum on expiry of
their license period. It is estimated that Airtel has to pay a huge sum of Rs
30000 crore, Vodafone may have to pay Rs 45000 crore and Idea may have to pay
Rs 21000 crore in 2013-15 when their licenses will expire, for procuring the
spectrum they have, again.
While the licenses of Airtel and Vodafone will
expire by 2014/15/16 and at that time the spectrum they have in 900 MHz would
be taken away and put for auction by the DoT in the process of refarming so as
to enable them to get it again on liberalized basis for providing advanced
services with less cost, BSNL will be having 900 MHz band spectrum in large
quantity until its present license period 2020 and it has to be utilized only
for providing 2G services only since its liberalization is not allowed without
refarming. Inspite of having 900 MHz
spectrum in abundance, it can not provide advanced services on it until 2020
and in case it wants the liberalized spectrum in 900 MHz band, it has to
procure it additionally in the auction by incurring a huge amount.
The reserve price recommended by TRAI is
justified
The TRAI in its recommendations has explained
that compared to the prices obtained in the various bands of spectrum in other
countries, the reserve prices recommended by it and the consequent price that
would be decided in the auction will be less and the financial impact will not
be so much, since the spectrum usage charge for the liberalized spectrum is
reduced to 1% on revenue compared to the earlier 3-6% on revenue. Also, the
payment of the spectrum price will be a deferred payment.
The case of BSNL and MTNL
Being the PSUs, the BSNL and MTNL are the
State. Hence they, as the State, are the owners of the spectrum allotted to
them, on behalf of the people. Hence they need not pay any thing for the
spectrum. When they were allotted spectrum in 1997/2000 without collecting any
price for that in 800/900/1800 bands, and when that license period will
continue upto 2017/20, how can they be charged for liberalizing the spectrum in
these bands? Their case is different from the private operators since the
private operators paid entry fee for the spectrum they obtained. In view of the
enormous social obligations like providing landline services in rural areas and
broadband services in urban areas using its landline network by incurring
enormous losses, providing to the security needs of the country, encouraging
indigenous telecom equipment production by acquiring 30 per cent of its
equipment from ITI, providing large employment with social justice etc, the
BSNL and MTNL are entitled for the spectrum without any cost.
In its
response dated 20-03-2012 to the consultation paper of the TRAI on the
questions related to the auction of spectrum , the BSNL Employees Union submitted
as below:
“In China, the PSU operators were
allotted spectrum free of cost in the interest of providing cheaper services to
the people. On similar grounds, the PSU operators in India should be provided the spectrum in all
bands free of cost, recognizing them as instrumentalities in the hands of the
State for utilizing the natural resources efficiently in the interest of the
people. For this purpose, the PSU operators must be allowed to procure the
equipment without any delay and discrimination and keeping their present
financial condition in view, they should be allowed to procure loans from banks
with Government’s guarantee. Pending all the controversies, litigations,
insurmountable difficulties in allotting spectrum in all bands equitably
between the private operators, this preferential treatment to PSUs will help in
the efficient utilization of the natural resource of spectrum for the best
benefit of the people, in line with the judgment of the Supreme Court.
Moreover, the fact that the DoT/BSNL and MTNL were prevented from providing the
mobile services until 2002 and hence severely discriminated and were put at a
disadvantage should be recognized and they should now be allowed to provide the
advanced services on their existing spectrum bands without paying any amount to
the Government for that purpose. No payment be collected from BSNL/MTNL for the
spectrum allocated to them in any band and in any quantity.”
The important fact to be taken
note is that the Supreme Court judgment ordered for the auction for allocation
of spectrum in 2G band only and hence the question of liberalizing the spectrum
now does not arise in case of the private operators. Since there is no bar for
the liberalization of spectrum in case of the PSU operators (the equality issue
is the issue pertaining between the private operators only), and since such
liberalization is an immediate necessity for the benefit of the people, it is
necessary at least to allow the PSU operators to provide advanced services on
the existing spectrum bands”.
Therefore the PSUs should be
allowed liberalization of spectrum without payment of any amount for that.
---P.Asokababu
