Background

The Union Cabinet approved the proposal of Department of Telecommunication (DoT) on guidelines for spectrum trading arising from the recommendations of Telecom Regulatory Authority of India (TRAI).

The issue of spectrum trading has been considered by TRAI since 2010. However, since spectrum allocation (except 3G and BWA) was earlier made through an administrative process not based on  market pricing, TRAI was not in the favour of permitting spectrum trading with the apprehension that it may result in unearned windfall gain for telecom service providers (TSP) and  possible anti- competitive practices through consolidation/hoarding. Subsequently, DoT in late 2012- early 2013 decided that all existing TSPs would be required to pay a one-time charge (OTC) at a market determined price for their existing spectrum holdings (beyond 4.4 MHz/2.5 MHz for GSM/CDMA) for the remaining validity period. TRAI in its recommendation of September 2013 suggested that spectrum trading should be permitted subject to certain conditions. In October 2013, DoT conveyed its in-principle acceptance to TRAI’s recommendation for permitting spectrum trading while referring back some issues to TRAI with a request for detailed guidelines on the subject. TRAI sent its final recommendations on “Working Guidelines for Spectrum Trading” on 27 April 2015. Based on these recommendations, the DoT submitted its proposal on spectrum trading, which was then approved by the Union Cabinet on 9 September 2015. Detailed Spectrum Trading Guidelines are expected soon from the DoT.

Highlights of Spectrum Trading

Meaning

Spectrum trading means transfer of right to use the spectrum. Spectrum leasing is not permitted which means only ownership of usage right is transferred from the seller to the buyer. Since spectrum is allocated for a fixed term, it has been clarified that the trading of spectrum will not alter the original validity period of the spectrum. 

Area for Spectrum Trading

Spectrum trading is permitted only on a pan Licensed Service Area (LSA) basis. Spectrum cannot be traded for a part of the LSA. LSA is a service area for operation of a cellular mobile network e.g. Delhi, Mumbai, Gujarat, Punjab etc.

Permitted bands for Spectrum Trading

Spectrum trading can only take place for those spectrum bands which are earmarked for access services by DoT. Currently, spectrum in 800, 900, 1800, 2100, 2300 and 2500 MHz spectrum bands have been allocated for access services.

From the above mentioned spectrum bands, only the spectrum which has been assigned either through auction in the year 2010 or afterwards or on which the TSP has paid the prescribed market value to the Government, is permitted to be traded. However, in case of spectrum in 800 MHz band acquired by a TSP in the auction of March 2013, there is an additional requirement that the trading of spectrum will be permitted only if the differential between latest auction price and March 2013 auction price on pro-rata basis for the balance period of the right to use the spectrum is paid by the TSP.

Financial Implications

Any dues must be cleared by the seller TSP before it enters into an agreement for spectrum trading. All dues up to the effective date of transfer shall be the responsibility of the buyer. If there are any dues not known to the parties and which come to their knowledge after the effective date of trading, the Government in its discretion shall be entitled to recover such amount from the seller or buyer jointly or severally.  

If only a part of the spectrum holding in a band is sold by a TSP, both the buyer and seller TSPs shall be held responsible for the payment of remaining instalments for the quantity of spectrum held by each of the TSPs subsequent to the trade. This will be applicable in case the seller TSP had acquired the spectrum through auction and opted for deferred payment. 

A non-refundable transfer fees of one percent of the transaction amount or the market price of spectrum, whichever is higher, shall be imposed on all spectrum trade transactions and has to be paid by the buyer to the Government.

The amount received as a result of spectrum trading shall be a part of the revenue of the seller TSP and shall be subject to a license fee and spectrum usage charges as applicable to a TSP.

Time of Transfer

Spectrum can only be traded after two years from the date of its acquisition through auction or conversion of administratively assigned spectrum into tradeable spectrum. There could be additional requirements laid down in the bidding documents that the TSP will have to comply with depending on when the spectrum was acquired by the seller TSP.

However, merger route is another mechanism available to the TSPs for transfer of spectrum but it is subject to the extant merger and acquisition guidelines of DoT and has to undergo a court process.

Cap on Spectrum Holding

There shall be a cap on the total spectrum holding by a TSP. At present, the total spectrum held by a TSP in a LSA shall not exceed 25% of the total spectrum assigned for access services and cannot be more than 50% of the spectrum in a band and can vary from time to time.

Comments

The telecom industry is eagerly awaiting the rolling out of spectrum trading guidelines by DoT, which is expected by early October. Permission to trade in spectrum is definitely a welcome step as it provides an exit option to existing TSPs which had bought spectrum but have not been able to scale up their operations in India.  At the same time, it helps established TSPs with congested network, to buy spectrum and improve quality of service without waiting for spectrum to be auctioned by the Government

However, there are concerns within the industry pertaining to the fact that spectrum trading is a costly affair since the government has permitted spectrum trading only in the liberalised spectrum segment and many TSPs which have administratively acquired spectrum would be required to shell out thousands of crores of rupees to liberalise the spectrum before trading. In addition to it, one percent of the transaction amount is to be paid as processing fees to the government by the buyer along with the license fee applicable on the amount received by the seller.