The ‘Digital India’ Initiative of the Government

The ‘Digital India’ campaign of the Government was launched on July 1, 2015 by the Prime Minister, Narendra Modi. The INR 1.13 lakh crore is aimed at creating a digitally empowered society and knowledge economy. The project has the potential to bridge the digital divide and benefit billions of people through digital solutions in education, banking, healthcare, irrigation and agriculture sectors.

‘Digital India’ comprises of initiatives targeted to render good and effective governance to the citizens through synchronized and co-ordinated activities of various arms of the Government. This is centered on three broad key areas of – (i) Digital Infrastructure as a utility to every citizen, (ii) Governance and services on demand, and (iii) Digital Empowerment of citizens.

The programme aims to provide broadband highways, universal access to mobile connectivity, public internet access programme, e-governance: reforming government through technology, eKranti – electronic delivery of services, IT for jobs, information for all and electronics manufacturing: target net zero imports.

The ambitious project comes with its set of challenges, some of which are:-

1. Spectrum shortage: This can be said to be the biggest challenge. A visible trend shows that the numbers of wireless subscribers are growing and wireline subscribers are declining. Spectrum being a scarce resource, further mobile push is likely to make the situation worse. In case of the foreseeable happening of rise in the spectrum price, the telcos will not be in a position to provide affordable internet.
2. Duty abnormalities affecting the domestic manufacturing of electronics: Manufacturing has for long been a slow growth sector and the electronics manufacturing has been no different. The government removed 11.5% excise duty concession for manufacturing of electronics. During the recent signing of Memorandum of Understanding between the National Association of Software and Services Companies (Nasscom) and the India Electronics and Semiconductor Association (IESA), the Minister of Communication and Information Technology, Ravi Shankar Prasad admitted that for increasing the electronics manufacturing in India, a correction in the duty structure is vital.

With these, among other, challenges likely to be countered, it would have to be seen how would the Government overcome them and successfully implement the Project.

According to an NDTV report, the Finance Minister, Arun Jaitley, said that this project is a part of a series of programmes intended to give a new direction to the country. He further said while last week saw launch of ‘Smart Cities Mission’, ‘Skill India’ educational initiative would be unveiled next week.

Under ‘Digital India’ the Government endeavours to provide broadband connectivity in all panchayats, Wi-Fi in all schools and universities and public Wi-Fi hotspots in all important cities by 2019.

At the launch event, India Inc committed INR 4.5 lakh crore investments in projects relating to ‘Digital India’ and also promises to create about 18 lakh jobs under the programme.

Spectrum Auctions 2015

As readers may be aware from our previous post, the Department of Telecommunications, Ministry of Communications and Information Technology, Government of India (“DoT”) had put up spectrum in 4 bands of 800 MHz, 900 MHz, 1800 MHz and 2100 MHz, spread across the 22 telecom circle of the country. The auction process concluded last week after fierce bidding by eight telecom players over 19 days and 115 rounds.  Our previous posts on the timeline and schedule for the spectrum auctions can be accessed here.

The telecom players which were in the fray to bag spectrum from the auction included Airtel, Vodafone, Idea Cellular, Reliance Communications, Reliance Jio Infocomm, Tata Teleservices, Aircel and Uninor. These operators participated in the auction process comprising of a total of 465 MHz of spectrum across the four bands (103.75 MHz in 800 MHz band, 177.8 MHz in 900 MHz band, 99.2 MHz in 1,800 MHz band and 85 MHz in the 2,100 MHz band ).

In what could be a further boost to the Government, the Supreme Court has lifted a restraint order and allowed finalisation of the auction result. According to reports, these auctions fetched the Government approximately INR 1.09 lakh crore, which translates into INR 10,900,000,000 billion. The Supreme Court direction implies that the Government could have at least INR 28,000 crore from the total auction money before the end of the current financial year.

Earlier, a bench headed by Justice Dipak Misra had on February 26, 2015 allowed the scheduled commencement of spectrum auctions, but directed that the results should not be finalised without its approval. This approval came on March 26, 2015, when the bench observed that it may not be proper to block so much of money, when the Government has agreed that the final allocation will be subject to orders passed by the Supreme Court.

Some of the key highlights of the auction were:-

• Bharti Airtel, Vodafone and Idea Cellular retained their 900 MHz spectrum holdings;
• Reliance Jio Infocom managed to win CDMA band spectrum;
• Although Reliance Communications lost in three telecom circles, but it became India’s first and only operator with a nationwide footprint of the contiguous 800 MHz spectrum;
• Uninor did not win spectrum in any telecom circle;
• Aircel only participated in the bidding process for 1800 MHZ spectrum band, since it was disqualified from bidding for any new spectrum; and
• The Maharashtra circle generated the most revenue, accounting for INR 10,822 crore for 14 MHz of spectrum.

The results of the bidding process, as issued by the DoT can be accessed here and the DoT’s notice regarding the amount due from the telecom players is here. 

Spectrum Auctions Deferred to March & Cabinet Approves 3G Spectrum Base Price

In a recent decision, the Department of Telecommunications (“DoT”) has deferred the spectrum auctions, which were earlier slated to begin from February 25 to March 4, 2015.

In the upcoming auctions, the government would be putting for sale spectrum in the bands of 800 MHz, 900 MHz, 1,800 MHz and 2,100 MHz. The decision to postpone the auctions seems to have been taken earlier this week since the base price for the 3G auction is yet to be finalised and approved by the Government. The timeline for submission of applications, mock round of auctions etc. has also been deferred.

As per media reports in December 2015, seven licences each of Idea Cellular and Reliance Communications, four licences of Bharti Airtel and six licences of Vodafone will complete their term of 20 years, pursuant to which they would have to be renewed.

Additionally, in another development this week, the Union Cabinet has approved a base price of INR 37.05 billion for each unit of 3G spectrum in the 2,100 MHz spectrum band. The approved base price had been recommended by the Telecom Commission earlier this month. Our earlier post on the price fixed by the Telecom Commission can be accessed here.

The Telecom Commission recommended reserve price is around 11 per cent higher than what operators had paid during the spectrum auctions held in 2010 and approximately 36 per cent higher than the price of INR  27.20 billion recommended by the Telecom Regulatory Authority of India.

The Telecom – Defence Spectrum Swapping Receives Cabinet Nod

The resolution of the long pending spectrum swapping issue between the Department of Telecommunications, Ministry of Communications and Information Technology (“DoT”) and the Ministry of Defence (“MoD”) has received the approval of the union cabinet. The cabinet approved the swapping of 15 MHz of the 2,100 MHz spectrum band used for 3G services, presently with the MoD, in return for a release of an equivalent amount in the 1,900 MHz spectrum band by the DoT. Our earlier post on the auctions approved by the Cabinet can be accessed here.

However, the DoT is of the view that it would take a year to harmonise the 15 MHz spectrum, conceding that the same would not be available for the forthcoming auctions proposed in February, 2015. The 15 MHz spectrum would only be available for sale after technical issues are sorted out, which process can take at least a year. Harmonisation refers to making spectrum contiguous, or continuous, for both the defence as well as the telecom services. This has the effect of increasing the efficiency of spectrum, without any added costs. The Telecom Commission, DoT earlier this week, while approving the base price for 3G spectrum, also signalled that only 5 MHz of 3G spectrum would be put up for auction. Our earlier post in this regard can be accessed here.

As per news reports, the telecom operators are of the view that prices of 2,100 MHz spectrum would be unprecedentedly high as only 5 MHz would be up for auction along with the 2G airwaves next month.

Additionally, the cabinet has also earmarked 49 slots for defence use in the 3 MHz – 40 GHz spectrum bands, including 9 for exclusive defence use and 31 for defence use along with other agencies for sectors such as space, broadcasting and aviation, which are 50 km around border areas (categorised as defence interest zones). This would constitute as the defence band. However, for the remaining 9 slots, certain issues remain to be resolved between various ministries. In the defence interest zones, the spectrum would be used by telecom operators during peace time, however during war or hostility time, the areas would come under the MoD’s jurisdiction.

Regardless, the decision of the cabinet puts an end to long tussle between the DoT and MoD on the defence band and swapping of spectrum. The spectrum swapping was in-principle agreed between the DoT and the MoD in December, 2014. Our earlier post on the agreement arrived at can be accessed here.

Further, news reports indicate that the DoT is considering a Swachh Bharat cess of 0.1 per cent on the service tax currently levied on telecom services; however a final decision will be based on inputs from various ministries. It is also expected that after the spectrum auctions next month, the government will announce the re-worked guidelines for mergers and acquisitions and spectrum sharing and trading, to bring about the much-needed consolidation in the telecoms sector.

Telecom Commission Fixes the Base Price for 3G Spectrum

The Telecom Commission, which is the highest decision making body of the Department of Telecommunications (“DoT”), has finally recommended the base price for 3G Spectrum. As per media reports, the Telecom Commission rejected the recommendations of the Telecom Regulatory Authority of India (“TRAI”) and approved a base price of INR 37.05 billion for each units of 2,100 MHz spectrum.

The Commission has also affirmed the decision that 5 MHz of spectrum in the 2,100 MHz spectrum band would be put for auction in the forthcoming spectrum auctions. This decision also overrides the recommendations of TRAI that an additional quantum of 15 MHz of 3G spectrum be put up for auction simultaneously. The said 15 MHz spectrum would be available with DoT after the swapping of the same with the Defence Ministry against equal amount of 1,900 MHz spectrum, for which the Ministry of Defence has agreed in-principle. However, the government is keen on auctioning only 5 MHz spectrum in the coming round of auctions, since the discussion for vacation of spectrum are still on and actual swapping might take time.

With this base price approved by the Telecom Commission, the government is expected to fetch around INR 840 billion from the auction of 3G airwaves in the upcoming auctions.

The TRAI had on December 31, 2014 issued its recommendations in this regard, suggesting a base price of INR 27.2 billion for a unit of 3G spectrum. Our post on the TRAI recommendations can be accessed here. However, the said recommendations were sent back by the DoT for TRAI’s reconsideration, suggesting a higher base price of INR 38.99 billion per unit of spectrum. Our earlier post in this regard may be accessed here. In response to this, the TRAI had decided to stick to the earlier 3G base price recommendations, reiterating the suggestion for the base price of a unit of 3G spectrum at INR 27.2 billion.

Spectrum Sharing Guidelines Likely Only After Spectrum Auctions

The issuing of the guidelines for sharing of spectrum is likely to be delayed further and the same may be issued after the forthcoming spectrum auctions next month. The guidelines would be finalised and are likely to be issued after the auctions, upon finalisation.

The finalised guidelines were earlier supposed to be issued in December last year, however the same have not yet seen light of the day. Further, even the recent Notice Inviting Applications issued by the Department of Telecommunications (“DoT”) for the upcoming auctions in February, 2015 had indicated the guidelines for these would be notified in due course.

As per news reports, the DoT is not keen on announcing the guidelines before the auctions as this might prevent companies from aggressive bids is causing a revenue loss to the exchequer. However, the Telecom Commission, the highest policy making body of the DoT, is yet to take a final decision on the issue. Our previous post on the issue of spectrum sharing guidelines may be accessed here.

The Telecom Regulatory Authority of India (“TRAI”), in July 2014, recommended that sharing of spectrum in all bands (2G, 3G and 4G) should be allowed, subject to the condition that all operators have spectrum in the same band. The TRAI, however, specifically provided for a prohibition on leasing of spectrum. Additionally, the DoT plans to allow sharing of spectrum only between entities having 2G spectrum in the same service area and not between operators with spectrum in different service areas. Please refer or previous post on the recommendations issued by TRAI here.

DoT is in the process of finalisation of guidelines for inter-operator swapping. The said swapping is regardless of the type of allocation to ensure contiguity. The DoT has formulated a committee for the identification of issues concerning the industry, resolution of the issues and framing appropriate guidelines.

Additionally, the DoT is in process of reviewing the policy relating to licensing requirements for import of low powered wireless devices.

Spectrum Auctions from February 25

The Department of Telecommunications (“DoT”), on January 9, 2015 issued the ‘Notice Inviting Applications’ (“NIA”) notifying the schedule for the forthcoming spectrum auctions, subsequent to the approval granted by the Union Cabinet earlier this week. Our previous post on the cabinet approval can be accessed here. The said auctions are slated to begin from February 25, 2015.

The NIA, which is the only legally binding document for the auctions, outlines amongst other things details of the plan to sell spectrum to telecom operators, eligibility requirements and minimum earnest money which operators are to deposit to participate in the auctions.

This auction is pegged to be the largest ever telecom spectrum auction targeted to fetch at least INR 64,840 crore, in contrast INR 62,162 crore garnered by the Government from the last auction in February 2014. The upcoming auctions will be held for frequencies in four spectrum bands of 800 MHz, 900 MHz, 1800 MHz and 2100 MHz. The quantum of 2G spectrum to be auctioned (in the 800 MHz, 900 MHz and 1800 MHz bands) is estimated around 380.375 MHz in total.

Out of the estimated INR 64,840 crore, it is expected that around INR 16,000 crore would be paid in the current financial year as the first tranche. The budget for 2014 – 2015 had projected overall revenue from the telecom sector this financial year at INR 45,471 crore, 16.7 per cent higher than the interim budget estimate.

This auction is crucial for the existing players such as Vodafone, Reliance Communications and Idea whose licenses will compete their 20 year term in the 2015 – 2016 period.

However, the government though is yet to take a decision on the base price for 3G spectrum and the details regarding 3G spectrum would be issued later in the coming weeks. While the cabinet has approved the sale of 5 MHz each of 3G spectrum in the 2100 MHz band in 17 circles, the NIA is silent on the quantum and the reserve price. The move to auction 2,100-MHz spectrum brings some relief for telecom operators, who have been asking the government to auction additional spectrum for commercial use. Although, the telecom operators were hoping for around 20 MHz spectrum in the 2,100 MHz spectrum band.

The Telecom Regulatory Authority of India issued the recommendations for the base price for 3G spectrum in December 2014. Our earlier post on the recommendations can be accessed here. However, the Telecom Commission, earlier this week, had sent back the recommendations for TRAI’s reconsideration. Please refer our earlier post on this here.

Indian Cabinet Approves 2G Spectrum Auctions

The Union Cabinet has now approved the auction of 380.75 MHz of 2G spectrum in 800 MHz, 900 MHz and 1,800 MHz spectrum bands and finalized the base prices at which the said spectrum bands would be put to auction. Please refer our earlier posts in this regard here. As per media reports, the upcoming auction is possibly set to be one of the largest of its kind.

The approved final base prices and the relevant telecom circles are captured in the following table:-

Spectrum Band	Base Price Approved by the Cabinet (in INR crores)	Telecom Circle
800 MHz	3,646	Pan-India
900 MHz	3,980	Pan-India, excluding Delhi, Mumbai, Kolkata, and J&K
1,800 MHz	2,191	Pan-India, excluding Maharashtra and West Bengal

 

In December 2014, the Telecom Commission had approved base prices for the said spectrum bands, on the basis of the recommendation made by the Telecom Regulatory Authority of India (“TRAI”). Please refer our previous post Telecom Commission Approves Base Price for 2G Spectrum for the approval.

The base prices finally approved  by the Cabinet are the same as those approved by the Telecom Commission, with the exception of price of spectrum in the 900 MHz band wherein the Telecom Commission had recommended a slightly lower base price of INR 3,693 crores.

As per the tentative timelines issued by the DoT, the auction process is expected to commence from February 23, 2015, after the initial pre-qualified stage of the bidders that is expected to be completed by February 13, 2015.

Minister for Communications and Information Technology, Ravi Shankar Prasad,was quoted as stating that the government intends to auction 3G spectrum in the 2,100 MHz band simultaneously with the 2G spectrum. However, it is to be noted that the Cabinet has not announced the base prices for 3G spectrum as yet. In this regard the TRAI has  just issued its recommendations for the base prices for 3G spectrum in the 2,100 spectrum band. Our previous post on the 3G spectrum pricing recommendations can be accessed here.

In the auctions for 2G Spectrum held in 2014 the Government had received over INR 62,000 crores. Please refer our earlier post on the 2G Spectrum Auction 2014 for details. It is expected that the proceeds from this years’ spectrum auctions will help the government reach its fiscal deficit target of 4.1 per cent of GDP.

Telecom Regulator Recommends Base Prices for 3G Spectrum

The Telecom Regulatory Authority of India (“TRAI”) issued the recommendations on the valuation and reserve price of spectrum for the 2,100 MHz band on December 31, 204 (the recommendations issued by the TRAI can be downloaded here), whereby it has recommended the base prices for the auction of 3G spectrum.

The TRAI has yet again recommended that the spectrum in the 2,100 MHz band should be put to auction alongwith the spectrum in the 800 MHz, 900 MHz and 1,800 MHz spectrum, scheduled for next month. The TRAI has observed that the simultaneous auction may be possible, since the Ministry of Defence has in-principle agreed for the release of 15 MHz of spectrum in the 2,100 MHz band. Our previous posts in relation to the developments in this regard can be accessed here and here. The TRAI has observed that the said amount of spectrum should be auctioned simultaneously with 2G spectrum even if the same is not available immediately, since the actual assignments do not have to be made immediately.

With regard to the roll-out obligations, the TRAI recommends that the obligations applicable to the spectrum in the 2,100 MHz band should be applicable for the upcoming auctions; however the period to meet these obligations should be reduced from 5 years to 3 years.

The TRAI has recommended that Department of Telecommunications (“DoT”) must take steps to ensure the 3G spectrum auctioned earlier and subsequently cancelled by the Supreme Court of India should also be put to auctions.

The TRAI has proposed a base price of INR 27.2 billion for a unit of 3G spectrum, raising the possibility of the government netting a substantial chunk of revenue from the spectrum auctions, easing worries about the fiscal deficit. The base price for the 3G spectrum auctioned in 2010 was around INR 35 billion.

TRAI, in the recommendations, provides a complete list of the base price for the spectrum auction in the 2100 MHz spectrum band.

Depart of Telecom seeks Defence and Finance Ministries’ Nod for Spectrum Auctions

The Department of Telecommunications (“DoT”) has finalised the draft note for the spectrum auctions early in 2015 and the same has been sent to the Ministry of Defence and the Ministry of Finance for vetting.

As per news reports, the Government plans to auction some amount of 3G spectrum with spectrum in the bands of 800 MHz (used by CDMA operators), 900 MHz and 1800 MHz being used by Airtel, Vodafone, Idea Cellular and Reliance Communications for 2G services across India.

The Government is expected to rope-in revenue of at least INR 93.55 billion from auctioning spectrum in the three bands of spectrum and also expects to raise additional INR 50 billion from auction of 3G spectrum in the 2,100 MHz band, provided it is vacated by the Defence Ministry and is consequentially put up for auctions.

Recently, the long pending contentious issues between the DoT and Defence relating to auction of 3G spectrum such as (a) vacation of spectrum in the 2,100 MHz band and the Defence Ministry in-principle agreeing to vacate 5 MHz of spectrum across 17 out of 22 telecom services circles, and (b) swapping of 15 MHz spectrum in the 2,100 MHz band with a likewise amount in the 1,900 band to be released by the Defence Ministry and DoT respectively, have been sorted out. Please refer our previous post on the resolution between the Government departments here. However, there still remain certain technicalities to be clarified and cleared for the arrangement between the DoT and the Ministry of Defence to be effectively implemented. For this reason, the DoT is taking views of the Ministry of Defence on the note on spectrum auction, before the same could be sent to the cabinet.

It is expected that the spectrum bands would be put up for auction in the forthcoming auctions scheduled to be held in the month of February 2015.