900 MHz spectrum to be priced higher than 1800 MHz: KPMG

In the upcoming spectrum auction which might happen in September, 900 MHz spectrum would be priced higher than 1800 MHz, believes Jaideep Ghosh of KPMG.

The Empowered Group of Ministers today sought fresh recommendations from Telecom Regulatory Authority of India (TRAI) on spectrum reserve price and also asked the regulator to provide recommendation within 60 days. Experts said that seeking TRAI's recommendation was a step in a right direction. "In these 60 days or so, TRAI needs to have a fresh look along with industry stakeholder consultation including this particular aspect," Ghosh pointed. It must be noted that previous spectrum auction had failed to garner desired response due to higher prices. Prashant Singhal, Telecom Leader, E&Y said that considering the past experience TRAI needed to come up with a better reserve price. He further observed that operators who had lost 900 MHz earlier would now be forced to participate in the 900 MHz auction for sustenance of their business. He believed that higher spectrum price would eventually be passed on to the consumers in form of increased tariff. On the refarming front he says, TRAI must re-look at refarming along with reserve price. "It makes sense for TRAI to relook at refarming together with the auction prices because there is a strong linkage. You cannot disassociate refarming to the auction prices." Also read: TRAI to make suggestions for spectrum reserve price: Sibal Below is the verbatim transcript of the discussion on CNBC-TV18 Q: Try and make sense for us and for our viewers, the Empowered Group of Minister (EGoM), the government essentially takes decisions on spectrum, cuts the price, does one round of auction yet now at this advanced stage it decides to send it back to the Telecom Regulatory Authority of India (TRAI) and ask for time bound recommendation, what are your initial thoughts on this? Ghosh: Pretty much this is what should have been done in my opinion. This is a right step in terms of getting TRAI to do a proper consultation process with the stakeholders and then come up with appropriate recommendations. Q: For the 1800 MHz band the November 2012 auction price was Rs 14,000 crore. We know the results including the fact that the auction resulted in reserve price level bids in 17 circles, at 10 percent above price in one circle and no bids in four circles. For the 1800 MHz band - what would your quick recommendation be as far as what you think is the appropriate entry level price? Ghosh: It is a tricky question. In fact it was earlier set a higher level and it came down to Rs 14,000 crore. Now, I would expect that for proper participation and affordable prices it should be somewhere in the range of the 2010, 3G base price. I don’t have a calculated basis at this point of time but quick reaction would be something in that range would be perhaps much more acceptable and participative rather than Rs 14,000 crore or thereabouts. Q: This is to do with the 900 MHz band and the impact that it would have on established operators who hold frequencies in that band. The recommendation or rather the existing reserve price was twice that of 1800 MHz. Would you even at this stage suggest that the TRAI needs to relook at its previous recommendation of this indexation at double the amount of what is the 1800 MHz reserve price whatever that may be eventually? Ghosh: In these 60 days or so, TRAI needs to have a fresh look along with industry stakeholder consultation including this particular aspect. That definitely needs to be done. I think 900 MHz spectrum would definitely be priced higher than 1800 MHz. I don’t know whether two times is right price or not but it is not too way off also in terms of the spectrum pricing if you look at the difference between 1800 MHz and 900 MHz. However, this is something the stakeholder consultation process should throw out more appropriate industry oriented answers. Q: To what extent would you expect offhand and completely at this very early stage of this decision. Would you expect the TRAI to relook what the previous authority had suggested. In other words, do you expect Rahul Khullar to better what JS Sarma had recommended in his last days or would he agree with the current trend in the industry that the auction reserve prices have been set way high above what the market can sustain? Singhal: I would actually go with the latter because there is enough evidence on the ground which says that the auctions at the prices which were recommended earlier are a failure. The participation had been dismal. It is not only on the auctions, if you see the industry is not investing; there is hardly any capex investments which are there in the industry. The growth of the industry has slowed down. Currently, TRAI cannot overlook all these aspects and come up with a better reserve price, which would really mean that obviously some of the operators who will lose the 900 MHz or they will have to participate in the 900 MHz or forced to participate in the 900 MHz, will come and pick it up for sustenance of their business. However, eventually all this will get passed on in the form of increased tariff to the consumers because there is no business case. There is no business case at Rs 14,000 crore as well and we all know that. Q: The question therefore is triggered from your answer. The Kapil Sibal says that the TRAI will look into the appropriate entry point and if we read into that statement it does not seem to suggest that the Terms of Reference (ToR) will go beyond the auction reserve price that could also happen eventually once the ToR is firmed up. But at this stage would this entire issue of refarming, which in some ways is coterminous to the price level also be something that you feel should be relooked at because this is a demand that the Cellular Operators Association of India (COAI), has been raising and the Association of Unified Telecom Service Providers of India (AUSPI) has been opposing. We know that divide in the industry. Should that aspect also of the previous TRAI's recommendation be relooked at through this exercise? Singhal: I don't think that that is the ToR. I would suggest that they should relook at it again. Apart from the industry associations and they maybe a loggerheads on this but as an outsider from the industry, who has been in the industry for long time. It makes sense for TRAI to relook at refarming together with the auction prices because there is a strong linkage. You cannot disassociate refarming to the auction prices.