The decision to refarm spectrum in the 900 MHz wavelength has huge implications for the telecom industry, and it further complicates the forthcoming 2G auctions in the 1800 MHz band. The Empowered Group of Ministers (EGoM) will have to consider the modalities and logistics carefully, since several issues are yet to be clarified. The physical logic for refarming appears to be strong: signals on low-frequency bands like 900 MHz propagate longer distances and penetrate obstacles better. Hence, 900 MHz is better suited to high-end data services, such as 3G. The existing 900 MHz licences for 2G GSM services expire from November 2014 to 2016. Operators will need to buy spectrum as licences expire, and it will clearly cost a lot more than a decade ago.
But will they be allowed to buy back 900 MHz spectrum and continue offering 2G services in that band? The policy doesn’t clarify this. The intention is to start auctioning 900 MHz in May 2013, some 18 months before 900 MHz licences start expiring in November 2014. Shifting 2G services to 1800 MHz could be expensive. Airtel, Vodafone, Idea, BSNL and MTNL, who all offer 2G services on 900 MHz, would have to sell or junk existing equipment, and buy or install new equipment and base towers compatible with 1800 MHz. Cellular operators have cited a study by Analysys Mason, which claims operators will have to spend over Rs 81,000 crore on capital expenditure, write off Rs 22,310 crore in 900 MHz assets, and incur an additional Rs 11,762 crore in annual operating expenses. If passed on, they claim this would result in average voice tariff increases of 64 paise a minute. The changeover would affect about 70 million users.
Policy makers must also, however, weigh the potential price realised from reselling 900 MHz spectrum and the future demand for high-end data services (which obviously affects 900 MHz prices). Unfortunately, prices for 900 MHz spectrum haven’t been transparently discovered. There will be a discovered price for 1800 MHz only after 2G auctions. Policy clarity is needed now because it will affect bidding in both the 1800 MHz auctions and the later 900 MHz auctions. Meanwhile, the sector is stressed financially, with dropping operating margins and high levels of debt. Thus, operators have been selective in their applications to bid in the 2G auctions for 1800 MHz. In the current climate, they will find it difficult to fund the extra expenses of shifting to 1800 MHz. The demand for 3G services appears relatively low. If 900 MHz is reserved purely for high-end data services, the prices discovered at the scheduled May 2013 auction will probably disappoint. Thus, the EGoM must consider the issues with care before it takes a binding decision. Given a trend towards technological neutrality, it might make sense to allow existing operators to bid for 900 MHz spectrum and continue to use it as they wish. As and when demand for 3G picks up, they are likely to upgrade their networks anyhow.
