India’s plan to re-auction its 2G spectrum by the end of August has collapsed, with the government saying it cannot meet the deadline. This will lead to further delays in delivering much needed new capacity, and heighten the uncertainties for operators which had their licences cancelled amid the corruption scandal surrounding the original 2008 process.
An inter-ministerial group (IMG) appointed by the Department of Telecom has concluded that the deadline of August 31, set by the Supreme Court after it cancelled the previous licences, is unachievable. Its chief concern, according to local media, is that the committee which is defining the auction rules has not yet agreed on a reserve price for the spectrum. Regulator TRAI had sparked anger with recommendations for a base price almost 10 times higher than the fees paid in 2008 (INR36.22bn or $687m per MHz of nationwide spectrum in the 1.8GHz band, compared with INR 3.8bn rupees in the earlier sale.
Another area of uncertainty surrounds the roll-out obligations which will be imposed on spectrum winners. An initial set of rules was released last week, but did not include these two vital elements. Eight chunks of spectrum in the 1.8GHz band and three in 800MHz will be offered, but no auctioneer can be appointed until all the guidelines are published.
In the wake of the Supreme Court’s decision in February to cancel 122 2G licences issued in 2008, the government warned that a re-auction could take up to 400 days, which suggested a date around March 2013, but the Court ordered it to comply with an earlier deadline. The delays have left the holders of the previous licences in a state of uncertainty about the future of their business. Many of the owners had not yet built out the spectrum, but those with active services were told they would still have to rebid for their frequencies.
Telenor and other foreign investors threatened to pull out over the fiasco but in reality, most are looking around for new options. Telenor is hunting for a new partner to give it an entry to the huge market. The Nordic carrier has an existing joint venture in the country, Uninor, with real estate firm Unitech, but the future of that has been in doubt since the licence cancellations.
However, the huge growth potential of Indian mobile services is hard to ignore, and Telenor is now reported to be looking for a broader alliance, with local operator Tata Teleservices, which could help it achieve the scale necessary to compete in a market with such low margins and large numbers of 2G cellcos. According to local newspaper Business Line, Telenor has already held talks with Tata, which numbers Japan’s NTT DoCoMo among its stakeholders. Options could include merging Uninor with Tata Teleservices, or for Telenor to acquire DoCoMo’s shareholding.
Final decisions will be taken depending on the auction results. Although the key rules have not yet been finalized, some details have emerged about the process, whenever it takes place. The Department of Telecom (DoT) said last week that 1.8GHz and 800MHz frequencies will be auctioned off in 1.25MHz blocks. In the higher band, eight blocks of 1.25MHz will be offered in all service areas, with an additional three blocks reserved for new entrants, if they emerge. Existing operators will be allowed to take a maximum of two blocks and new entrants will be required to bid for a minimum of four blocks.
In the 800MHz band, three blocks of 1.25MHz will be auctioned. Existing carriers can bid for only one block per region, while new players must bid for at least two. All the licences will be technology neutral, which could pave the way for additional 3G capacity, or HSPA roll-out by cellcos which missed out in the 3G auctions. The 1.8GHz 2G band is increasingly popular around the world for HSPA or LTE deployment.
The DoT said in its statement that the objectives of the auction are devise a transparent process which will lead to a market driven price; as well as to ensure efficient use of spectrum and avoid hoarding; stimulate competition; and maximize revenue proceeds ‘ in other words, all the aims which were signally not met by the 2008 process.