Union Cabinet approves mega spectrum auction

India’s mobile network operators will see the country’s largest spectrum auction taking place in September 2016. The auction will put up spectrum from various bands on sale amounting to a total of Rs. 5.66 lakh crore.

Approved by the Union Cabinet today, the spectrum sale is set to take place with bidding beginning on September 1, while the document inviting applications for the spectrum bid will be circulated to invitees on July 6.

Reports on the spectrum bid suggest that the Government is expected to raise an amount of Rs. 64,000 crores from the sale of the 2,300MHz spectrum while the other spectrums are to bring in revenue totaling to Rs. 98,995 crore.

The Cabinet has also approved the sale of the premium 700MHz band where operating costs are 70% lower than the much-used 2100MHz bands for delivery of 3G services. The 700MHz band will be put up for sale at a price of Rs. 11,485 per 1MHz. A company would need to buy a minimum of a 5MHz block in the band to sustain services on a pan-India basis which would amount to a minimum buy-in of Rs. 57,425 crore.

Operators nationwide have requested the Cabinet to delay the sale of the premium 700MHz band for a later time as the current infrastructure is not suited to use the full potential of this spectrum and purchasing it currently would only mean underutilizing it.

The total revenue which this spectrum sale seeks to raise is Rs. 5.66 lakh crore, which is exactly twice the amount that the entire Indian mobile network industry reported as gross revenue for the year 2014-2015, standing at a figure of 2.54 lakh crore.

Another important factor brought up by a global industry body GSMA was that the recommended reserve price set was more than 20 times the amount of annual cash-flow available in the mobile industry. Moreover, the total sales figure for the upcoming bid would be twice the total amount ever invested by companies in a spectrum sale so far.

The Cabinet has also set stringent payment terms for the sale with making 50% of the payment needed upfront at the time of purchase and the rest to be repaid over a period of ten years after a 2-year moratorium period. This is in the case of purchasing spectrum above the 1GHz band namely, 1800MHz, 2100MHz and 2300MHz. The previous rules prescribed for an upfront payment of 33% which was more realistic for network providers.

The purchase of spectrum under 1GHz, namely the 700MHz band, will invite an upfront payment of 25% with the same moratorium and repayment period as the bands mentioned above.

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Nitin Agarwal

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