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Analysis of Wireless Spectrum Auction in India and Pricing BenchmarkPosted on February 27, 2012 byJayanth Kolla

Recently, the Indian Supreme Court has cancelled the 2G operations licenses in 122 circles (license

areas) of multiple carriers. The government is planning to auction the spectrum obtained from

these license cancellations.

Historically, in India, startup 2G spectrum was awarded along with the operating licenses and

additional spectrum was allocated basis the subscriber-linked criteria. Spectrum for 3G and BWA

(Broadband Wireless Access, potentially using 4G technologies) operations was awarded through

auction.

The early (incumbent) GSM carriers received startup spectrum in the 900 MHz band and over a

period of time their spectrum holding ranged from 6.2 MHz to 10 MHz per circle. The fourth carrier

(and the subsequent entrants) received startup spectrum in the 1800 MHz band. The initial GSM

round was allocated 4.4 MHz in Metros (the 22 circles or license areas in India are classified into

four different categories Metros, Categories A, B & C). When Category B&C circles were

introduced, another 1.8 MHz was allocated, with each carrier having 6.2 MHz. Category A carriers

were allocated another 1.8 MHz with total raising to 8 MHz. Incumbent carriers lobbied for more

spectrum in metros and were allocated a total of10 MHz. For CDMA 800 MHz band (with limited

spectrum of 20 MHz for disbursement), while the incumbents (Tata Teleservices and Reliance

Communication) received 3.75 MHz to 5 MHz of spectrum, the new entrant MTS (Shyam Telelink)received only 2.5 MHz of spectrum in most circles.

The 3G and BWA spectrum auctions held in mid-2010 added approximately USD 22 Bn to the

exchequer. As 3G spectrum price increased during the auction, none of the private carriers

managed to procure pan-India spectrum. Carriers primarily focused on acquiring 3G spectrum in

circles in which they had an existing market leadership. During BWA spectrum auction, while a new

entrant Reliance-Infotel managed to acquire pan-India spectrum, the other private carriers

opportunistically acquired spectrum in various circles to compliment their 3G spectrum and/or in

circles where the average mobile data usage was high.

Globally, wireless spectrum auction prices are measured using $/MHz/Pop benchmark. This is

defined as price paid in US Dollars ($) per Megahertz (MHz) of spectrum for providing wireless

service to one person (Pop) in the license area. This auction pricing benchmark is determined by

four key parameters:

Spectrum Characteristics

Spectrum Regulation

License Area Characteristics and

Auction Structure

Spectrum Characteristics: Spectrum characteristics, especially technology choice / mandate has

a significant impact on the auction pricing benchmark

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- For instance, BWA spectrum auctioned globally (between 2000 to 2008 for WIMAX) had lower

price ($0.01 to $0.03 $/MHz/Pop) than mobile 2G and 3G spectrum because of the lack of

mobility as well as the higher cost of build-out for the license area

Spectrum Regulation: Regulatory guidelines/restrictions on spectrum usage (such as public

safety requirements) also result in a lower pricing

Lower price realization for C block spectrum in the US 700 MHz auction was due to open

access clauses (open devices, applications & services), proposed by Google and mandated by

FCC

Lower than reserve price realization and no winning bid for D block spectrum in the US 700

MHz auction was due to public safety deployment clauses mandated by FCC

License Area Characteristics: Markets with high revenue potential and lower build-out Capex

can cost significantly higher relative to average price of auction

In US, AWS-1 spectrum auction in 2006, Washington DC was sold at the highest pricebecause of high revenue potential and lower cost of build-out

Similarly, Chicago CMA has a lower cost of build-out because of its flat terrain which drives

its spectrum price

Auction Structure: Spectrum auctions, which are not structured to promote competition, have

significantly lower price realization

In Switzerland, there was no premium over the reserve price as the number of slots was

equal to the number of incumbents

In Germany and UK, one spectrum block was set aside for a new entrant (incumbents not

allowed to bid for that block) which also resulted in a higher price point for the spectrum

While the $/MHz/Pop for 3G spectrum auction in India was one of the lowest in the world (at

$0.32), the price for BWA spectrum was one of the highest (at $0.12), closely followed by

Switzerlands (3.4 GHz & 2.6 GHz) auction price.

In India, another key parameter that could affect the 2G spectrum pricing is the Return on

Investment. With over 75% mobile penetration and the incremental ARPUs being in the range of $1,the carriers need to evaluate the business viability of acquiring the spectrum and rolling out

networks. It is due to these issues that some of the carriers such as STel and Etisalat DB have

decided to close their operations, and their foreign investors (Batelco & Etisalat) are pulling out of

India.

As the government is in the process of drawing up guidelines and structure of 2G spectrum auction

(along with the other M&A and spectrum sharing policies), carriers have given their

recommendations regarding the auction structure to the regulator. While the incumbents favor the

open auction route, new entrants such as Uninor and Videocon recommended a phased approach.

It will be interesting to see how auction will be structured and the various strategies adopted by

both incumbent and new carriers in acquiring the spectrum, and most importantly, the manner in

which (if at all) the premium will be passed on to the end consumers.


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About Jayanth Kolla

Jayanth has donned many hats including those of a technocrat, product marketer, analyst and a management

consultant during his decade long career in the Indian Telecom Industry. He is passionate about this industry and

the vast potential of telecom in India, both for consumers and businesses. Through this blog, Jayanth comments

upon the latest regulatory, technology and business model trends in the telecom industry.

View all posts by Jayanth Kolla

This entry was posted in Auction, Business Model, Carriers, Profitability, Spectrum, Telecom and tagged #India, 2G, 3G, 4G, Airtel, Auction, BWA, Etisalat, Idea,

Network, Rollout, Spectrum, Telenor, Vodafone. Bookmark the permalink.

7 Responses to Analysis of Wireless Spectrum Auction in India and Pricing Benchmark

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