The union cabinet on Wednesday gave a nod to the much-awaited 5G spectrum auctions as well as to the development and setting up of private captive networks as part of its plan to roll out next-generation telecom services, which would be about 10 times faster than 4G. A total of 72,097.85 MHz of spectrum, with a validity period of 20 years, will be put to auction to be held by the end of July 2022. The auction will be held for spectrum in various low (600 MHz, 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz), mid (3300 MHz) and high (26 GHz) frequency bands.

According to a recent report, the upcoming 5G spectrum auction sale starting late July will have a few incremental positives for major bidders - Reliance Jio, Bharti Airtel, and Vodafone Idea - such as the duration for spectrum usage, easy payment options, and private captive networks. ICICI Securities in a report says the duration of the right-to-use spectrum has been kept unchanged at 20 years, versus 30 years announced earlier. It says it's positive for telcos, and significantly restricts the total spectrum payout.

“Spectrum final reserve prices for C-band (3300-3270MHz) is same as recommended by Telecom Regulatory Authority of India (TRAI) at ₹317 crore per megahertz (MHz) pan-India; however, Department of Telecommunications (DoT) has notified that spectrum right-to-use duration will be unchanged at 20 years. Earlier, the government had hinted at increasing spectrum right-to-use duration to 30 years, and TRAI had recommended to increase reserve price by 1.5x in case of 30 years, which would have meant 50% higher spectrum payout for telcos. Thus, 20 years’ duration is positive for telcos, and significantly restricts the total spectrum payout,” ICICI Securities says in its report.

As per the report, telcos will spend ₹31,700 for 100MHz pan-India on 3300MHz band and ₹3,500 crore for 500 MHz on 26 GHz band. “This is broadly in-line with our estimates for Bharti and Reliance Jio (RJio)," it says.

On payment options, the research firm says the spectrum purchased in the upcoming auction will have easy payment options. In first case, the telcos will have the option to make full or part upfront payment of total bid amount within 10 days of auction completion. Part payment will have to be made at least for two years’ instalment or multiple complete years thereafter. The buyer will have the option to avail moratorium for the corresponding number of years of payment.

In the second case, there is an option to make payment in 20 yearly equal instalments with first instalment due in 10 days of completion of auction. The rate of interest of calculating instalment is fixed at 7.2%, while pre-payment of spectrum dues is also allowed without any penalty.

DoT has released a notice inviting applications (NIA) for the auction of spectrum in 600, 700, 800, 900, 1800, 2100, 2300, 2500, 3300 MHz and 26GHz bands. As per NIA, upcoming spectrum auction will start from 26th July’22, while the last date for submission is 8 July 2022. The deadline for earnest money deposit is July 20, which will indicate maximum spectrum payout for each telco.

The report also highlights spectrum usage charges (SUC) have been reduced to nil for the upcoming auction, which will significantly reduce the acquisition cost of fresh spectrum in upcoming auction. Bharti, VIL, and RJio paid SUC charges of 3.7%, 3.7%, and 3.6% of total AGR in Q4FY22, and the agency believes if telco buys C-band and 26GHz, SUC should dip to negligible amount. SUC is calculated based on the weightage of spectrum quantity, and the corresponding SUC %.

Besides, telcos are allowed to surrender spectrum that will be auctioned after a minimum period of 10 years from the date of acquisition. As per the rule, spectrum bought in previous auctions cannot be surrendered, while telcos need not pay any future instalment post spectrum surrender. Besides, pre-payment made towards the surrendered spectrum will not be refunded, and telcos will be barred from taking part in the auctions for surrendered band in particular circle for the next two years.

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