Wireless Spectrum Auctions in India: Part1

The recent spectrum auctions in India have generated a lot of interest. Media have been agog with news about the money that the government stands to gain ( > 67000 crores). Commentators have pointed out that the amount collected being much more than the budget estimate of 35000 crores would significantly reduce the budget deficit for the year. Some others have rued the burden that it would imposes on the telcos.

However I could not find any article that discusses the basic technical aspects of the spectrum auction. For example:

· How much spectrum is being auctioned and at what frequency?

· Is the amount of auctioned spectrum the same across all of India?

· It is widely reported that there is a 3G auction followed by a BWA (Broadband Wireless Access) auction. How much spectrum is being allotted for 3G and BWA? Are they at the same frequency band?

· What is the validity period for auctioned spectrum, i.e how long can it be used by the winning bidders?

· What is the service rollout obligation, i.e within a given timeframe from the date of auction, how much network coverage does a winning bidder have to ensure?

· Is the spectrum allotment amount the only monies that the bidders have to pay or are there other charges as well?

· Is there any provision for wireless backhaul? In that case would there be separate spectrum allocations for the backhaul

The aim of this post is to fill these gaps in the information. This would be a multipart post. In the first part I would answer all the questions listed above. In the second part I would discuss the financial implications, restrictions on M&A etc.

The technical details:

Spectrum availability: The whole of India has been divided into 22 telecom service areas. Some are classified as Metro (Delhi, Mumbai & Kolkata) and some classified as A,B & C service areas.

3G spectrum: Nominally 4 slots of 2*5Mhz of paired spectrum are being auctioned. The amount is less in some areas, such as Delhi, where only 2 paired slots are available. So when we hear that Delhi and Mumbai received the highest bids, with Delhi edging out Mumbai, remember that the spectrum in Delhi was twice as scarce than in Mumbai and so the comparison is not to scale.

The following is the complete list of the 3G spectrum auctioned across the 22 telecom service areas (or circles).

BWA spectrum: 2 blocks of unpaired spectrum of 20Mhz each.

Additionally 1 block of 3G spectrum and 1 block of BWA spectrum has been allotted to MTNL or BSNL; MTNL in Delhi and Mumbai and BSNL for the rest of India. MTNL and BSNL have been allotted the spectrum much earlier and did not participate in the auction process. However they have to pay an amount equal to the winning bids in their respective regions.

An operator can be allotted at most 1 slot of 3G and 1 slot of BWA spectrum in any given service area.

Frequency: The 3G spectrum is made available around 2.1Ghz while the BWA spectrum is around 2.3Ghz.

Technology: There is no restriction on the technology that can be used to provide 3G or BWA services. However since the BWA spectrum is un-paired it rules out FDD-LTE (which needs a paired spectrum) and restricts the choice to either WiMAX or TDD-LTE.

License Duration: The right to use the spectrum is granted for an initial period of 20 years. The 3G license is extendable by 10 years at a time by mutual negotiation between the operator and GOI (Government Of India). The extension terms of the BWA license are not clear.

Service Rollout Obligation:

3G and BWA: Within 5 years from the Effective Date (defined as the later of the date of allotment of the spectrum or the date of granting of operating license) the operator shall ensure the following:

· Metro: 90% street level coverage

· A,B,C service areas: 50% of the District-Headquarters or towns are covered with 90% street level coverage in each.

Other Charges: A spectrum usage charge (over and above the spectrum acquisition fees) as a percentage of the Adjusted Gross Revenue shall be payable by the operator as per rules notified by the GOI.

· For an operator that holds 2G+3G spectrum, the annual spectrum charges vary between 3% to 8% of the AGR.

· For BWA spectrum it seems like the spectrum charge is 1% of the AGR.

Backhaul: Separate spectrum would be made available for point-to-point backhaul links within 1 month of the deposit of the bid amount. The royalty for the use of spectrum would depend upon factors such as frequency, hop and link length, area of operations etc. However it looks like the backhaul spectrum would not be expensive and is expected to be a resource that for all purposes is bundled together and provided to the winning bidder.