Why did TRAI recommend high reserve price for spectrum auction?

TRAI’s decision to recommend steep auction reserve prices may have rattled the industry, but the telecom regulator had its own reasons for suggesting the relatively high price.

It recommended a spectrum auction reserve price roughly double that of actual prices discovered in 3G auctions in 2010 for the 800-900 MHz band that has so far been used for 2G services.

For the other 2G band (1800 MHz), it recommended prices slightly lower than those discovered in the 3G auctions in 2010.

It justified its recommendation on the following grounds:

1) The new spectrum that will be auctioned will be technology-neutral, unlike spectrum that was given during the 3G auctions or others. As such, they are not inferior in quality to 3G spectrum, as they can be used to provide 3G or 4G services also.

2) Lower level spectra (such as 900 MHz and to some extent 1800 MHz) can travel more with the same number of towers. In other words, operators would need to install much lower number of towers in lower-range spectra. As such, such spectra is more valuable.

3) The last 3G auction had specified that the base price of any new auction within a year will the same as the actual price discovered in the 2010 auction.

4) Operators now have the option of paying for the spectrum over ten years, unlike the earlier pay-at-once clause. ‘Downpayment’ is only 33%.


The first characteristic of the new spectrum will be that they will be truly technology neutral. While earlier licenses restricted a particular spectrum to a technology, such as GSM (2G), the new spectrum can be used for anything.

“Spectrum liberalisation would enable mobile operators to launch new services and technologies and increase competition. Spectrum liberalisation also offers a number of benefits including better rural and in-building coverage, faster roll-out of mobile broadband and more choice for consumers,” TRAI said.

Spectrum can be broadly divided into six classes. As their frequency (MHz) increases, their penetration power falls and the operators need to put more and more towers to cover the same area.

700 MHz — Used for terrestrial TV transmission (Doordarshan) and possibly ready for broadband use by 2015.

800 MHz — Used for CDMA services (voice and EVDO high-speed data)

900 MHz — Allocated to early GSM players such as Bharti Airtel and Vodafone for 2G voice

1800 MHz — Allocated to late GSM players such as Uninor for 2G services

2100 MHz — 3G services allocated in 2010

2300 MHz — 4G spectrum (LTE/Wimax) allocated in 2010

2500 MHz — 4G spectrum allocated in 2009 to BSNL

In its new recommendations, TRAI put the reserve price of new 3G spectrum at roughly the same price as what was discovered in the 2010 3G auction. For all other lower level spectra, TRAI increased the reserve price according to the expected network-operation savings that operators stand to make.

For example, it noted:

“It is approximately 70% cheaper to provide mobile broadband coverage at frequencies around 700MHz than using the core 3G frequencies at 2100 MHz. This means networks can be rolled out quickly and cost effectively, bringing cheaper services to consumers,” it noted.

Similarly it noted that in many countries, the use of 900 and 1800 MHz bands (now used for 2G GSM voice in India) has been liberalised. As was discussed earlier, 40 commercial (3G) networks have been launched in 29 countries and more than 700 devices are available in this band.

Commercial LTE services using 1800 MHz have been launched in Europe, Middle East, and APAC which includes Poland, Lithuania, Singapore, Germany, Latvia, Finland, Saudi Arabia,
Australia, Denmark, Finland and Hong Kong.

“More than 350 operators are estimated to have been allocated 1800 MHz spectrum. In many markets, 1800 MHz represents the largest spectrum allocation. Providing widespread coverage with LTE in the 1800 MHz band is substantially cheaper than covering the same area with LTE using higher frequency bands,” it noted.

“There is an excellent choice of LTE1800 devices in the market today. (There are) 50 LTE 1800 in the 1800 MHz band. The number of LTE 1800 devices has tripled over the past 6 months,” it added.

TRAI estimated that the total requirement of spectrum in the next five years would be of the order of 500 to 800 MHz including 275MHz for voice services alone. On the other hand, the availability of spectrum is only to the tune of about 287 to 450 MHz, leading to the need to divert 2G spectra to 4G and others.

On 700 MHz, TRAI noted that specifications and standards for equipment and eco-system will be released only by June 2012 and commercial availability of equipment and eco-system is expected by first half of 2013.

As such 700 MHz auction will be last to be conducted. The first one will be a price-discovery auction meant primarily for operators whose licenses were cancelled, if they are still interested in carrying on with the business in India. (see chart.)

TRAI also made special provisions to take the interest of new operators, whose licenses have been cancelled, into consideration.

It recommended that for this round of auction only, a provision be made to allow a successful bidder who is a new entrant to take upto 4 blocks of 1.25 MHz so that it has the minimum spectrum to commence operations.

“In the event the successful bidder is an existing spectrum holder of that band, it shall be restricted to only two blocks of 1.25 MHz each. Also, in such a case, if the second highest bidder is a new entrant, it shall be entitled to 4 blocks of 1.25 MHz each, but at the price offered by the highest bidder. Only in such an event, the total spectrum made available
through this auction will be 7.5 MHz,” it noted.

The final schedule of auctions will be:

(a) 5 MHz of 1800 MHz band- This auction would be to establish the market value of spectrum. This could be done in the current year 2012-13 as early as possible.

(b) Allocation of additional 1.25 MHz spectrum to the holders of 4.4 MHz in 1800 MHz bands, subject to the legal opinion.

(c) Auction of spectrum in the 800 MHz band- This should also be done in the current financial year.

(d) Auction of spectrum in the 900 MHz band- This auction 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 band- This should be done in the first half of 2013-14.

(f) Auction of Spectrum in 2100 MHz band – This should also be carried out in the second half of 2013-14.

(g) Auction of available spectrum in 700 MHz band- This 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 financial year 2014-15.