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.

Telecom Spectrum Pricing – Telecom Regulator Re-iterates Stand

The Telecom Regulatory Authority of India (“TRAI”), in response to the reference of the Telecom Commission to re-consider recommendations on reserve price of spectrum, has reiterated its earlier stand. TRAI has re-affirmed its original stand on pricing spectrum and simultaneous auction of the 800 MHz, 900 MHz, 1,800 MHz and 2,100 MHz bands.

Our previous post in this regard, Telecom Commission Sends Back Spectrum Recommendations to TRAI and on the recommendations issued by the TRAI on spectrum pricing can be accessed here.

Through the latest recommendations issued on November 24, 2014, the TRAI seems to have rejected the Telecom Commission’s view that most of the recommendations / suggestions on the issue should be reconsidered for the upcoming spectrum auctions in early 2015. The TRAI has reiterated its suggestion that the Department of Telecommunications (“DoT”) should simultaneously auction spectrum in the bands of 800 MHz, 900 MHz, 1,800 MHz and 2,100 MHz to avoid uncertainty in the spectrum allocations.

The Telecom Commission had earlier stated that the simultaneous auction would not be possible since the issue of swapping of 1,900 MHz spectrum for 2,100 MHz band with the Ministry of Defence would take time, delaying the auction process. In this regard, the TRAI has recommended that all 120 MHz (2 slots of 60 MHz each) in the 2,100 MHz band should be made available for commercial use. This would ensure the availability of sufficient spectrum for commercial exploitation, since the spectrum for commercial use in India is about the lowest in the world.

In view of the recent developments indicating towards the resolution of the spectrum swapping issue, TRAI is of the view that the swapping process between the DoT and Defence Ministry should be completed soon, so that the spectrum in the 2,100 MHz band could be put to auction.

In the recommendations issued earlier this week, TRAI has stated that there is no change in the reserve prices for spectrum in the 900 and 1,800 MHz band from what were recommended earlier. In October, around 10% hike in the reserve price for the 1,800 MHz band was recommended by the TRAI.

Also, the TRAI has observed that the DoT should take steps to make available additional spectrum in the 900 MHz, 1,800 MHz and 2,100 MHz spectrum bands, by taking back 1.2 MHz of 900 MHz spectrum band from Bharat Sanchar Nigam Limited (BSNL), using the idle 1,800 MHz spectrum in the defence band and vacating spectrum held in excess of 20 MHz by the military in 1,800 MHz band.