DoT & TRAI Differ on Minimum Block Size for Feb 2015 Auction

TRAI had recommended a minimum bid block size of 3.6 MHz for 900 band spectrum versus the 5 MHz bid block size stipulated for the Feb 2014 auctions. The DoT argued that there has been no change in market dynamics since the Feb 2014 auctions and hence there is no need to change the minimum bid block size.

The TRAI, rightly noting the limited availability of spectrum in these auctions and the much-higher possibility of irrational/tactical bids with a 5 MHz bid block size, has reiterated its earlier recommendation of keeping the minimum bid block size at 3.6 MHz (for all circles except West Bengal where the TRAI recommends 2.4 MHz noting availability of only 4.4 MHz spectrum in the 900 band).

This is the most critical recommendation that we are watching out for. The difference in auction outcomes between a 5 MHz minimum bid block size scenario versus a 3.6 MHz one will be material, in our view. Our base case assumes that minimum bid block size will be <4.2 MHz. We would view the DoT keeping it at 5 MHz in the eventual auction NIA (notice inviting applications) as a negative to incumbents and the entire sector as well. On the Reserve Price of Telecom Spectrum, the DoT wants the reserve prices in metros and A circles (for 1800 band) and in A circles (for 900 band) to be equal to TRAI’s valuation of the spectrum and not at a 20% discount as suggested by the TRAI. We are of the view that eventual clearing prices to be higher than the TRAI’s recommended reserve prices, anyway

We hope the newly elected Government monitoring the DoT will not face any scams and criticisms and ensure smooth sale of the Natural Resource – The Spectrum.