Cabinet clears 5G auction, setting up of captive networks by enterprises

The Union Cabinet has cleared 5G spectrum auction, while retaining the reserve price that was recommended by the Telecom Regulatory Authority of India (Trai) in April and accepted by the Digital Communications Commission (DCC) subsequently. Even as telecom firms had sought a 90 per cent reduction in spectrum reserve prices from the level set by the regulator in 2018, Trai lowered it by only around 36 per cent in a review two months ago. The Cabinet nod implies that bidding for 5G, along with some other spectrum bands, could start by end of July.   

In an upset for telcos, the Cabinet has  permitted enterprises to run  “captive private networks” with direct allocation of spectrum by the Department of Telecommunications (DoT).  Enterprises have also been allowed to lease  spectrum from service providers to run a  network. DoT had reservations on both these points.

However, the payment for spectrum can be made annually through 20 equal instalments (to be paid in the beginning of each year), keeping in mind telcos’ cash flow issues. Bidders would also be given an option to surrender spectrum after 10 years, with no future liabilities on balance instalments.

The Cabinet had discussed 5G bidding at its Tuesday meeting, but announced the details of the approval a day later through a DoT press note.

The base price has been pegged at Rs 317 crore per MHz in the 3.5 GHz band (3300-3670) for 20 years, representing a 36 per cent reduction from Trai’s 2018 proposal. 3.5 GHz range is used globally to enable 5G connectivity.  

Protesting against direct allocation of spectrum to enterprises, the Cellular Operators Association of India (COAI) has written to communications minister Ashwini Vaishnaw. The leading lobby group for telcos has argued that such a move would make their business case for 5G unviable. Referring to leasing of spectrum by enterprises, COAI said such a move would make 5G network rollout by telecom service providers irrelevant.

DoT also simultaneously released the notice inviting applications (NIA) on Wednesday, with the time table for the upcoming auction. According to the NIA, the final date for submission of applications would be July 8, list of bidders will be declared on July 20 and auctions will begin on July 26.

Telecom gear makers say they are ready,  if orders are placed in July to roll out limited 5G services in some cities between the end of the year and March 2023.  

Besides 5G spectrum, the Cabinet also cleared the sale of 72 GHz of spectrum across various bands such as 600, 700, 800,900, 1800, 2100 and 2300.  

To enable the rollout of 5G, the Cabinet has allocated two carriers of 250 MHz each in the E band to service providers for backhaul. This could help as fibre backhaul in the country is still limited to only 40 per cent of the towers.

While the Cabinet formalised the decision by the Digital Communications Commission (DCC) on not reducing the spectrum base price despite a nudge from Niti Ayog and demands from telcos, it also permitted the setting up of the contentious captive remote wireless private networks.

DoT’s earlier stance was that enterprises could use a network slice from service providers or request a telco to establish an independent captive network in their premises using TSP spectrum. But it had reservations on the regulator’s suggestion that they could lease spectrum from TSPs and run their own private networks or obtain spectrum directly from DoT to run the same. It suggested that more demand assessment, business models and ecosystem studies must be done on these recommendations and considered at a later stage.

While direct allocation of spectrum has been permitted, DoT would do demand studies and  seek Trai recommendation on the same. It has also made it clear that telcos with UASL licence are free to build captive networks for enterprises also.

The move is a victory for non-mobile services  companies like Tata Communications,  ITC and members of the Broadband India Forum such as Facebook, Google and Amazon.

 These firms have been demanding direct allocation of spectrum and setting up of captive networks, in line with global trends. In a statement, BIF chairman T V Ramachandran said: “It’s a forward looking step and the harbinger of digital transformation which is critical for Digital India. It will make Indian enterprises globally competitive, will boost Atmanirbhar Bharat and industry 4.0.”

Despite the setback, telcos are likely to  participate in the upcoming auction. But a senior executive of a leading telco said: “We might have to rethink on the speed at which we were looking at rolling out compared to earlier. Why should we make huge investments in roll out, when some others could be given spectrum at nominal rates?”

Estimates suggest that around 40 per cent of 5G revenues could come from enterprises. Also, global data suggests that retail ARPUs (average revenue per user per month) have barely grown in the first two years after launching 5G. Rolling out a 5G pan-India network could require over Rs 1 trillion  investment in five to seven years. 

Analysts say Reliance Jio and Airtel are expected to bid for 100 MHz of 3.5 GHz spectrum and around 800-1000 Mhz in the millimetre band. Vodafone Idea recently said the company did not see a “use case” for 5G still. But it may still bid for 5G, which is more cost effective per GB than 4G, primarily to strengthen its 4G network in some areas. 

Each company is expected to fork out Rs 40,000 crore in 20 years for 100 MHz of spectrum in the mid-band and 1000 Mhz in the millimetre band.

A source pointed out that with the government capping spectrum at 40 per cent, two aggressive players in the 3300-3670 Mhz band could buy close to 150 GHz, leaving very little for a third player and virtually nothing if BSNL’s demand to reserve 70 Mhz is accepted.

The next level

• 72 GHz Quantum of spectrum to be auctioned across various bands

• Rs 317 cr/MHz Base price for 5G spectrum in 3.5 GHz band for 20 years

• 36% Reduction in base price compared to Trai’s 2018 recommendations

• July 8 Final date for submission of applications

• July 26 Spectrum auctions to begin

• Enterprises  allowed to run captive private networks; to get spectrum directly from DoT despite COAI protest