We might soon get a test of mobile service provider willingness to pay, and perceptions of spectrum value, as the Indian government gets ready to auction off about 2.3 GHz of mobile spectrum for 3G and 4G purposes. It is hard to know what is worse: acquiring spectrum at prices that are too high to earn a return, or failing to secure enough spectrum to compete in mobile Internet access.
There are at least some indications mobile operators will not behave irrationally, and bid amounts that do not earn a return. As attractive as some of the spectrum might be, it might be better to forego acquiring it.
Some estimate that the leasing of just 770 MHz of that 2,300 MHz of spectrum–in the 700-MHz band–could generate as much as 70 percent of total proceeds, even though the 700-MHz block represents just about a third of the available spectrum.
But others think operators will not bid so much, either for 700-MHz or the other spectrum, for entirely practical reasons: they might not believe they can earn a reasonable return on the investment.
Some speculate that sold spectrum–assuming virtually everything is purchased–will amount to about US$83 billion, increasing mobile service provider debt loads as much as 185 percent.
Few think mobile operators will buy all the spectrum at proposed prices, for that reason. They simply might not be able to earn a return on the spectrum investments.
At such expected levels, the auctions would represent more than 25 percent of the country’s national budget for the financial year 2016-17, and more than double the combined revenues generated (around $38 billion) by all telecom companies during the financial year 2014-15.
The problem is that some observers believe the service providers cannot possibly afford to buy all that spectrum, at suggested minimum prices. A 2010 auction of 3G spectrum, for example, occurred at prices higher than seen in similar auctions in Germany and the United Kingdom.
In other markets, spectrum strategy likely already is being affected by the prospect of much new unlicensed, shared spectrum and vast amounts of brand-new communications spectrum to be released for 5G and other untethered network purposes.
Though scarcity will remain a key issue, on a longer term basis, in many markets, scarcity value will lessen, making high spectrum prices dangerous for business models.
Changing supply and demand issues, and the business model for Internet access, is a key focus of the Spectrum Futures conference.
New lower-cost platforms and huge increases in spectrum supply are among the issues to be discussed.