What are Spectrum Auctions?

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The Department of Telecommunications (DoT) recently announced that auctions for 4G spectrum in the 700, 800, 900, 1,800, 2,100, 2,300, and 2,500 MHz bands will begin soon.  This will be the sixth round of spectrum auctions for radio waves worth Rs. 3.92 lakh crore.

What are spectrum auctions?

  • Devices, such as cellphones and wireline telephones, require signals to connect from one end to another. These signals are carried on airwaves (medium of radio waves), which must be sent at designated frequencies to avoid any kind of interference.
  • Interference may prevent reception altogether, may cause only a temporary loss of a signal, or may affect the quality of the sound or picture produced by one’s equipment.
  • The Union government owns all the publicly available assets within the geographical boundaries of the country, which also include airwaves.
  • With the expansion in the number of cellphone, wireline telephone and internet users, the need to provide more space for the signals arises from time to time.
  • To sell these assets to companies willing to set up the required infrastructure to transport these waves from one end to another, the central government through the Department of Telecom (Ministry of Communications) auctions these airwaves from time to time.
  • These airwaves are called spectrum, which is subdivided into bands which have varying frequencies.
  • All these airwaves are sold for a certain period of time, after which their validity lapses, which is generally set at 20 years.

What is the present scenario?

  • The last spectrum auctions were held in 2016. The need for a new spectrum auction has arisen because the validity of the airwaves bought by companies is set to expire in 2021.
  • In December 2020, the Union Cabinet cleared the sale of 2251.25 MHz of spectrum (for 4G) across seven frequency bands at a reserve price of Rs. 3.92 lakh crore.
  • This is likely to provide a boost to government revenue collections at a time when its inflows from other sources such as direct taxes, indirect taxes such as goods and services tax, have fallen sharply on account of restrictions to prevent the spread of Covid-19.
  • However, the government has skipped the sale of the much-coveted 5G airwaves in this round, auctions for which could be announced soon.
  • Airwaves in the 3500 MHz band are considered ideal for the first wave of the 5G.
  • Depending on the demand from various companies, the price of the airwaves may go higher, but cannot go below the reserve price.
  • A reserve price is a minimum price that a seller would be willing to accept from a buyer. If the reserve price is not met, the seller is not required to sell the item, even to the highest bidder.
  • The reserve price is recommended by Telecom Regulatory Authority of India.
  • The successful bidders will have to pay 3% of Adjusted Gross Revenue (AGR) as spectrum usage charges.
  • AGR is divided into spectrum usage charges and licensing fees that are fixed between 3-5% and 8% respectively.
  • It is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).
  • In the above-1 GHz bands of 1,800, 2,100, 2,300, and 2,500 MHz frequency bands, bidders will have to pay 50 per cent upfront, and can then opt to pay the rest in equated annual instalments.
  • The successful bidders will, however, have to pay 3 per cent of Adjusted Gross Revenue (AGR) as spectrum usage charges, excluding wireline services.

Potential buyers, which are said to be from existing telecom players and new companies, are eligible to bid for the airwaves. Foreign companies, however, will have to either set up a branch in India and register as an Indian company, or tie up with an Indian company to be able to retain the airwaves after winning them.