India’s wait for 5G may get longer with the telecom regulator declining to review spectrum prices that the country’s debt-laden telcos have termed too costly to buy.
The Telecom Regulatory Authority of India (TRAI) last August set a base price of Rs 492 crore (around $70 million) per megahertz for the 3,300-3,600 MHz band, expected to be the primary band for 5G services. The regulator this week declined a government request to review the prices, potentially leading to an auction failure.
The Cellular Operators Association of India (COAI), the industry body that represents telecom operators, said that all telcos, including new entrant Reliance Jio Infocomm Ltd, are unanimous that these prices are too high. Bharti Airtel Ltd has said it would not participate in an auction held at these prices, while Vodafone Idea Ltd has suggested the 5G auction take place in 2020. Jio has not yet made its plans public.
Keen to conduct India’s first 5G auction this year itself, the government last month asked the regulator to review the auction architecture, including reserve prices, to make sure the benefits of 5G reach social sectors. However, the regulator was not convinced.
"There’s a divergence clearly. The government says the pricing does not make sense. But TRAI does not think so. When two arms have divergence in terms of opinion, as a regulator, it (TRAI) carries weight. So, the question is, who is the umpire?" said COAI director general Rajan Mathews.
Historically, India has priced spectrum much higher than the rest of the world. In fact, in the last auction in 2016, the 700MHz band remained unsold. The government did not auction any spectrum in 2017-18 and 2018-19.
In Australia and South Korea, 5G spectrum was auctioned at $5 million and $18 million per MHz, respectively, against India’s base price of $70 million. While TRAI justifies the higher price to India’s higher population, telcos say the addressable population and profit margins are much lower.
"On per-population basis, the spectrum is the cheapest, TRAI says. But telcos can’t take the whole population as denominator," Mathews said. "The whole country is not even on 4G. When will 1.1 billion people come on 5G and what is the addressable market? Also, this has to be correlated with the Indian users’ ability to pay."
Mobile tariffs in India are currently among the lowest in the world. In India, the average cost of 1 gigabyte of mobile data is Rs 10. Telcos in the US offer the same for $12, while in South Korea it is $15.
"Since the government is now in a spot after the regulator refused to cut prices, it is likely that the government will allow this auction to fail," a senior official at a telecom equipment maker said on condition of anonymity.
The government’s decision to ask for a review of the recommendations was done with an aim to ensure that the benefits of 5G reach social sectors.
"Globally, 5G is being used for B2B sectors. India is looking at agriculture, health, education, smart cities, etc. These are not big-ticket in terms of margins. Telcos here are expected to devote efforts on these social aspects, but then they are paying commercial rates for spectrum," said Mathews.
TRAI has suggested the 3,300-3,600 MHz band be auctioned as a single band at Rs 492 crore per megahertz.
India Ratings and Research said that any incremental spending for the acquisition of additional spectrum, along with investments in 5G technology, may further stretch the balance sheets of telecom operators and derail the recovery process.
"However, the auction may not garner adequate interest as telcos are still optimizing their existing spectrum; moreover, spectrum pricing continues to be a matter of concern, and 5G technology has still not been finalized," the credit rating agency said in a report on Tuesday.
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