Column : Costing spectrum refarming

Oct 23 2012, 01:49 IST
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SummaryIf the price of 900 MHz spectrum is too high, it makes financial sense to let it be refarmed.

The debate on the relative impact of refarming (full, partial or none) is incomplete without considering the pricing of 900 MHz spectrum. Having 900 MHz spectrum is of course operationally better than having 1800 MHz spectrum given the superior spectral characteristics of 900 MHz. However, from a financial standpoint, higher pricing for 900 MHz spectrum has the potential to negate the value derived from better spectral characteristics.

The final impact for any operator would be equal to the cost of re-farming plus the cost of keeping/buying 900 MHz spectrum. For example, let’s say Vodafone faces a choice between (1) letting all its 900 MHz spectrum holding in the Mumbai circle be refarmed and reconfiguring its network completely for the new 1800 MHz spectrum, (2) paying a ‘market-determined’ price for its 900 MHz spectrum and not letting any of it be refarmed, and (3) letting some of its 900 MHz spectrum be refarmed and buying the rest—all three options entail a cost.

The optimal choice would be a function of the price/MHz of 900 spectrum (versus 1800 MHz) and the reconfiguration costs in the partial or full refarming case. Without knowing the price/MHz of 900 MHz spectrum, it is not possible to take a call on the relative impact of various modes of refarming. If the price of 900 MHz spectrum is too high, letting it all be re-farmed may turn out to be the right option.

The eventual choice would depend on 900 MHz pricing and would be operator-circle combination specific. Even in a full refarming case, incumbents have a choice to bid in the 900 MHz auctions and keep the 900 MHz spectrum. A ‘no refarming’ case with economically unviable administered/market-discovered price of 900 MHz spectrum could actually be worse than a full re-farming situation. The Bharti example given in the table illustrates the interplay between the refarming mode and 900 MHz price—renewal payout and refarming impact need to be seen together.

It’s difficult to agree with the ‘lack of a level-playing field’ argument put forth by players that do not have 900 MHz spectrum currently. It is, of course, true that all else (including price/MHz) being equal, 900 MHz spectrum is better than 1800 MHz spectrum. But execution remains critical—we have seen 900 MHz players (BSNL, MTNL and RCoM in a few circles) lose market share consistently; we also have examples of 1800 MHz players doing well operationally

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