The federal government has been planning to offload unutilized spectrum in 1800MHz and 2100MHz frequency bands to earn some much-needed non-tax revenues within FY21. Those frequency bands are ideal to run 4G networks. Mobile network operators (MNOs) need more spectrum to expand and improve their 4G coverage. But spectrum pricing remains a contentious issue, as operators feel burdened by high upfront fees, whereas the government comes back to the market every few years to score a windfall.
Reportedly, the auction, for which an international consultant had been hired earlier in January this year, would take place next month before the fiscal is closed. Previously, the finance ministry was keen to conclude the process in May. Perhaps June will be different. However, since the pre-auction Information Memorandum hasn’t been published so far, one cannot really say that the authorities are showing a sense of urgency to conclude the process and get paid before June 30.
But if everything goes as planned vis-à-vis the pre-auction modalities that will require at least a month to run through, the government is expected to net a handsome amount. What is the magic number? It depends on how much spectrum there is to sell, what the per MHz price is on offer, and how the mobile network operators react to pricing and rollout obligations, among other T&Cs. Those variables will be known once the Information Memorandum is out.
If the MNOs partook in the bidding activity with active interest, the upcoming auction could be a mega one, just as it was seven years ago. The government at the time (April 2014) had sold off 10MHz in 1800MHz band and 30MHz in 2100MHz band, at a total fee of $1.12 billion. Half of those proceeds were deposited by operators before the close of FY14, and the remaining half had to be paid off over five years.
For the upcoming auction, market sources suggest there can be three blocks of 9MHz-10MHz each on sale, with per MHz price (base price) ranging from $29 million to $31 million. While competition for three spectrum blocks in a four-player market is expected to be very limited, a nominal single-digit increase in base price can be expected. Even at base price, the government can achieve a sale of about $850 million. With 50 percent payment option, the treasury may receive about Rs64 billion before FY21 is out.
Let’s wait and see what the Information Memorandum really has in store. For the government, it is important to make this auction a success not only from a financial standpoint, but also from the lens of investor confidence. If the operators participated with zeal, it will be an indication that they have moved on from the license-renewal saga and the taxman-intimidation episode in recent times. But if their participation isn’t up to expectations, the policymakers will have to do some introspection.