The response to the 4G spectrum auction beginning 1 March will set the bar for the minimum price of 5G radio airwaves likely to be sold later this year, said analysts.
Though the central government has accepted the base price for 5G spectrum auction recommended by the telecom regulator in August 2018, and has so far not indicated lowering it, a weak response to 4G auctions may push it to reconsider pricing, they added.
While the Telecom Regulatory Authority of India (Trai) had recommended a base price of ₹492 crore per MHz of spectrum in the 3,300-3,600MHz bands, which is ideal for 5G, telecom operators said the spectrum is overpriced and the price must be reduced to make 5G services viable.
“Right now, what we are going to have is auction for bands other than 3.3 to 3.6 (GHz) but this band will also be auctioned somewhere in the next six months or so. After that, spectrum will be available,” submitted Anshu Prakash, secretary, department of telecom (DoT), to a standing committee of Parliament. The report was tabled on 8 February.
Prakash informed the committee that 5G, according to DoT’s “own assessment”, will be rolled out by the end of 2021 but not on a pan-India basis. The next-generation wireless technology will be launched “in select areas first where the demand would justify the capex”, he added.
Analysts have warned that the 4G auctions could be a repeat of the 2016 sale, when large chunks of airwaves were unsold due to the high reserve price, with no takers for spectrum in the 700MHz and 900MHz bands. Of the targeted ₹5.63 trillion in the October 2016 auction, the government could raise only ₹65,789 crore.
In fact, experts said spectrum in the 700MHz band could remain unsold this time as well due to its cost, which is the highest among the seven bands being put under the hammer. “Of the seven spectrum bands being put up for auction, we expect bidding to stay restricted to three-four bands, mostly to meet renewal demand, and potentially to selectively add some coverage and capacity spectrum,” Goldman Sachs Equity Research said in a report.
The government will auction 2,251MHz of spectrum at a reserve price of ₹3.92 trillion from 1 March. Spectrum in 700MHz, 800MHz, 900MHz, 1,800MHz, 2,100MHz, 2,300MHz and 2,500MHz bands have also been put up for sale.
The appetite for spectrum in the upcoming sale is low also as telecom operators may bid conservatively to reserve cash ahead of the 5G airwaves auction, analysts said.
“We see supply of spectrum to be almost 10-times the expected demand, given weak balance sheet (Vodafone Idea Ltd), adequate spectrum from M&A (merger and acquisitions) in recent years (Bharti Airtel Ltd) and a potential near-term auction of 5G spectrum,” Goldman Sachs said.
“With 5G auctions in 12-24 months, we expect operators to remain guarded… In estimating the spectrum requirements and willingness to bid, we also note that operators will be mindful of 5G auctions,” UBS said in a report.