Telecom – Spectrum saga – NIA alert:: HDFC Securities

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Telecom – Spectrum saga – NIA alert
Event: Department of Telecom (DoT) released the
Notice Inviting Applications (NIA) for the auction of
spectrum in 800MHz, 900MHz, 1800MHz and
2100MHz. The NIA contains all modalities of the
upcoming spectrum auctions. Below are key points:
 Objectives of the auction – Unchanged and same as
the prior auctions including, (1) obtaining market
determined price of spectrum (2) efficient use of
spectrum (3) stimulate competition in the sector (4)
promote rollout of services, and (5) maximise
revenue proceeds within the set parameters.
 Block size and minimum bids – The block size has
been set at 200kHz for 900MHz and 1800MHz, while
the same is 1.25MHz for 800MHz spectrum. The DoT
has categorised telecom operators into new entrants
and existing operators – new entrants are operators
who are facing a renewal of 900/1800MHz spectrum
in a circle, while other operators are treated as
existing operators. The minimum bid amount for new
entrants is 5MHz spectrum (where available) and
600kHz in the 900 and 1800MHz bands. For the
800MHz band, the minimum bid amount is 5MHz
(where available) and 1.25MHz for existing operators.
 Deferred payment option – The DoT has retained the
deferred payment criterion for spectrum. Operators
need to furnish 25% of the final bid amount as the
upfront payment for 800/900MHz bids. Upfront
payment for 1800MHz spectrum is 33% of the final
bid amount. Then, operators get a two-year
moratorium, after which they need to pay the
balance amount in equated annual instalments
indexed at the SBI Prime Lending Rate.
 Technology – Unlike earlier auctions, there is no
technology restriction on service rollout across
spectrum bands.
 Spectrum trading and sharing – Spectrum sharing is
permitted among operators that have liberalised
spectrum. The government will not levy any one-time
charge for the same. The government has also
decided in-principle to permit spectrum trading, with
detailed guidelines for the same being issued in due
course of time.
 Spectrum cap – The same is gauged circle-wise and
the limits have been retained at 25% of the total
spectrum allotted and 50% of the spectrum allotted
in a particular band.
 2100MHz band – Details will be issued later.
 Key timelines – The last date for submission of
applications is 6th Feb 2015 while the last date of
withdrawal of applications is 18th Feb 2015. The
auction will begin on 25th Feb 2015.
Our take – We believe that the minimum bid of 5MHz
for new entrants in the 900MHz band will be a key bone
of contention among existing operators as spectrum
supply remains inadequate. Further, operators are likely
to demand clarity on spectrum sharing and trading,
which we feel could be vital for the long-term
sustenance of the sector in a spectrum constrained
environment.
AUCTION TIMELINE
Process Date
Issue of Notice Inviting Applications (NIA) 9-Jan-15
Pre-bid conference 13-Jan-15
Last date for seeking NIA clarification 19-Jan-15
Clarifications to NIA 27-Jan-15
Last date for submission of Applications 6-Feb-15
Publication of Ownership details of Applicants 9-Feb-15
Bidder Ownership Compliance Certificate 11-Feb-15
Pre-qualification of Bidders 16-Feb-15
Last date of withdrawal of applications 18-Feb-15
Final List of bidders 20-Feb-15
Mock Auction 23–24 Feb-15
Start of the Auction 25-Feb-15
Payment of the Successful Bid Amount** Within 10 days of auction close
Source: DoT, TRAI, HDFC sec Inst Research