Telecom operators seek 5-6 year moratorium on spectrum purchases after 2025

Operators said such a moratorium is needed on spectrum bought in auctions from next year due to significant capital expenditure incurred in deploying 5G services

Don't want to miss the best from Business Standard?

Bharti Airtel, Reliance Jio, and Vodafone Idea have requested a 5-6 year grace period without interest, or moratorium, on payments for the spectrum acquired in auctions from 2025 onwards, according to a report in the Financial Express.

Spectrum is typically leased to operators for a 20-year term, implying that the operators will pay over a 14-15 year period through equal annual installments.

In their communication to the Telecom Regulatory Authority of India (Trai), the operators said such a moratorium is needed on spectrum bought in auctions from next year. They cited significant capital expenditure incurred in deploying 5G services, which have yet to generate revenue. They also emphasised the ongoing need for further investment in their networks.

In response to a consultation paper on auction of spectrum in 37-37.5 GHz, 37.5-40 GHz, and 42.5-43.5 GHz bands, Airtel told Trai, “Any new network takes a time period of at least 4-5 years to monetise... Recovering the payment for spectrum in 14 installments spread over the period of spectrum can meet the objective of securing revenue for the exchequer while also alleviating the financial burden on telecom service providers (TSP).”

The newly identified frequency bands, totalling 4,000 MHz, are expected to be included in upcoming auctions next year. Additionally, operators have asked for the introduction of a new payment method alongside the two existing options for spectrum acquired through auctions.

Currently, one payment option involves an initial upfront payment equivalent to at least two years’ worth of spectrum installments, with the remaining balance paid in equal installments along with applicable interest over the 20-year spectrum holding period, the report said.

Alternatively, operators have the choice to make 20 equal annual payments based on the bid amount, with the first installment due within 10 calendar days of receiving a demand note from the Department of Telecommunications (DoT).

In its submission, Jio told Trai, “The deferred payment for auction discovered spectrum price, should be spread over the remaining 15 years by way of annual payments. These annual payments should be charged with the reasonable interest rates of 6.5 per cent as specified by RBI Repo rate, in place of current prohibitive interest rates.”

The company suggested that the initial payment be limited to just 10 per cent of the bid amount, followed by a minimum five-year moratorium period without incurring any interest costs.

Spectrum valued at Rs 1.5 trillion in 2022

During the 5G spectrum auctions held in 2022, operators acquired spectrum valued at Rs 1.5 trillion. Jio and Airtel have experienced a surge in annual capital expenditure, reaching approximately Rs 30,000 crore to Rs 60,000 crore due to the rollout of 5G.

In addition to the favourable spectrum terms, operators have also requested a decrease in the reserve price of spectrum for the recently identified frequency bands.

The report quoted Jio as stating, “The current policy of keeping the reserve price at 70 per cent of the valuation is not optimum but too high and becomes an entry barrier and hinders competition. Instead, we recommend that reducing the reserve price to 50 per cent of the spectrum valuation would be optimum.”

Quantity of spectrum

Regarding the limit on the amount of spectrum each company can possess, Jio proposes the elimination of any such restriction by the government. However, Airtel and Vodafone Idea recommended a 35-40 per cent cap on spectrum holdings across the three bands to prevent monopolisation and uphold fair competition.