11 Spectrum Auction November 2012 and March 2013

Objectives of Auction The first step is to identify objectives of the auction Government set the following objectives:  Obtain a market determined price through a transparent process  Ensure efficient use of spectrum and avoid hoarding  Stimulate competition in the sector  Promote rollout of the respective services  Maximize revenue proceeds from the Auction within the set parameters. 2

Overview of Auction Process (1/2)  TRAI recommendations  EGoM/Cabinet Approvals  Issue of Auction Guidelines  Appointment of Auctioneer through competitive two part selection process  Issue of Information Memorandum (IM) Details about auction process; eligibility requirements Bidders could understand process and raise queries  Pre-bid Conferences Open-house session for stakeholders to raise queries and provide comments 3

Overview of Auction Process (2/2)  Queries & Responses to IM All queries responded to through DoT Website Second Pre-bid Conference on auction design  Issue of Notice Inviting Applications (NIA) Final bidding Government document for auction Detailed document with auction rules, spectrum for auction, eligibility requirements  Queries & Responses to NIA  Stakeholders and Press Information Sessions Presentations on auction rules, formats, preparations etc. to all the stakeholders  Mock Auction Simulation of real auction process Opportunity for bidders to test their systems Within the Government, an Inter-Ministerial Committee (IMC) constituted to supervise auction conduct 4

Auction design: Key features (1/2) Electronic or e-auction –Option for bidders to bid from any location –All bidding data logged into Electronic Auction System – no possibility of manipulation –Minimised requirement for human intervention –Risk of physical disruption mitigated Robust security features –Fully secure system with multiple levels of security –STQC Audit –All auction data backed-up on real time basis across multiple servers Price setting by auction system –Auction in the form of Ascending Clock Auction –Bid prices not set by bidders, but by auction system, based on pre-defined algorithm –Important safeguard against any potential collusion and risk of irrational over-bidding 5

Auction design: Key features (2/2) Simultaneous auctions, with switching flexibility –Bidders could optimise aggregation strategy across circles –Bidders incentivised to bid in more service areas to use budget –Allowed bidders strategic flexibility Confidentiality, with transparency –After every round, bidders informed about aggregate demand-supply situation and price levels – however identities of other bidders and their positions not disclosed –This maintained adequate transparency – also helped in sustaining competitive tension and in reducing chances of collusion 6 Activity rule through “eligibility point” system Designation of Provisional Winning Bidders to minimise unsold lots Extension time budgets to guard against technical issues EMD requirement

7 Auction Format (1/4) Two stages: Clock Stage and Frequency Assignment Stage Clock Stage: The winners of the number of Blocks for each Service Areas determined through the Clock Stage. The Clock Stage determines a common winning price for each Service Areas where spectrum is available.

8 Auction Format (2/4) Simultaneous bidding in each of the Service Areas. The first Clock Round to begin at the Reserve Price. The bidders can submit their bid for the number of blocks depending on their categorization in each Service Area. The ability to make bids is subject to the number of eligibility points, deposit requirements and activity rules. After each clock round, the bids in each Service Areas will be ranked.

9 Auction Format (3/4) Where n is the number of blocks available in a service area, the first n Bids in that service area according to this ranking will become Provisional Winning Bids, and the Bidders who submitted these Bids will become the Provisional Winning Bidders. If Total Demand in a Service Area for a Clock Round Price is GREATER than the number of blocks available, in which case the Clock Round Price will be increased in the following clock round, with the price increment linked to the level of excess demand.  Total Demand will be calculated on basis of Number of Blocks for which Bids have been received for a particular Clock Round Price.

10 Auction Format (4/4) In the following round, bidders state whether they wish to bid at the new prevailing prices. Clock rounds continue until there is no further demand for blocks at current clock price in each Service Area. Once the clock stage closes, the current provisional winners are declared winning bidders. There will be a common winning price for all winners in that Service Area. Frequency Assignment Stage: Frequencies are randomly assigned to winning bidders by the electronic auction system through pre-defined rules.

11 Earnest Money Deposit Requirements Each block in a Service Area will have a Earnest Money Deposit (EMD) requirement. Initial eligibility will be determined by the EMD submitted by the bidder. Bidding is restricted based on a combination total EMD submitted and the corresponding available eligibility points.

12 Eligibility to make bids Each block in a Service Area assigned a specific number of eligibility points. Initial Eligibility Points for each bidders in the first round based on the Earnest Money Deposit submitted by the bidders. Depending on the bid in the current clock round, bidding for subsequent rounds may be curtailed. Flexibility to switch between Service Areas.

13 Activity Rules – I A bidder’s activity in a clock round is the sum of:  the number of eligibility points associated with the block(s) in the Service Areas in which the bidder has been determined to be a provisional winner at the end of the last completed clock round; and  the eligibility points associated with the block(s) in the Service Areas where the bidder has made new bids (i.e. bids where it was not a provisional winner in the previous round) A bidder must demonstrate bid activity in each clock round that equals or exceeds a certain percentage of its eligibility, otherwise its eligibility will be reduced proportionately in the following round

14 Activity Rules – II The percentage (Auction Activity Requirement) will increase over the duration of the clock stage from 80% to 90% and then finally to 100%. These increases made by the auctioneer when there is a decline in the overall bidding activity across all Service Areas.

15 Provisional Winning Bidders and Prices At the end of a Clock Round, and for each Service Area, each bidder’s highest bid made so far in any round is taken and these bids are ranked in order of the ranking rules. The relative ranking of any bids carried over from previous rounds will be preserved. Where n is the number of blocks available in a service area, the first n Bids in that service area according to this ranking will become Provisional Winning Bids, and the Bidders who submitted these Bids will become the Provisional Winning Bidders. The provisional winning price associated with these bids will be equal to the lowest clock round price at which the provisional winning bidders submitted their bids,

16 Price Increments Excess Demand in a Service Area is defined as the bids received for the Number of Blocks in a Service Area for a particular Clock Round Price minus the total number of blocks put up for auction. Top-up blocks are not considered while calculating the excess demand. If excess demand in a Service Area is negative, the clock round price in the following clock round in that Service Area will remain unchanged. If excess demand in a Service Area is zero or positive, the price set in that Service area for the following clock round will be the current clock round price plus a price increment related to the level of excess demand.

17 Spectrum Cap (1/2) The upper limit (maximum spectrum/ blocks) for which a bidder can bid in any Service Area in any band will be restricted by a Cap which is as follows: The Overall Cap for each of the Service Areas is calculated as 25% of the Total Spectrum assigned for Telecom services in all bands. The Spectrum Cap in each Service Area in each band (Band- wise Spectrum Cap for each Service Area) is calculated as 50% of the Total Spectrum assigned for Telecom Services in that particular band in the respective Service Area. It is to be noted that the Total Spectrum assigned also includes the Spectrum (excluding Top-Ups) being put in the Current Auctions.

18 Spectrum Cap (2/2) The maximum number of blocks for which a bidder could submit a bid for each Service Area in each band was the LOWEST of the below given three values: 1) Overall Spectrum Cap in the Service Area minus Total Current Holding across all bands in the particular Service Area 2) Spectrum Cap in the band minus Current Holding of the bidder in the respective band for a Service Area 3) Total Spectrum put to auction (excluding top-up) in a Service Area in the respective band.

19 Bidding Stipulations – November, MHz Band New Entrants MinimumMaximum 45 Existing Licensees MinimumMaximum MHz Band New Entrants MinimumMaximum 23 Existing Licensees MinimumMaximum 11 In 1800MHz band Auction, the number of blocks put up for Auction in each Service Area was 8. The number of top-up blocks made available in each Service Area (except Delhi & Mumbai) was 3. In 800MHz band Auction, the number of blocks put up for Auction in each Service Area was 3, except in AP & Punjab where it was 2. The number of top-up blocks in each Service Area (except Delhi, Mumbai, Kolkata, AP & Punjab) was 1.

20 Bidding Stipulations – March, & 900MHz Band New Entrants / Renewal Licensees Minimum 4 Existing Licensees Minimum 1 800MHz Band New Entrants Minimum 2 Existing Licensees Minimum 1 The maximum number of blocks which any bidder could bid was restricted based on the Current Holding of the Bidder in the respective band and the Total Holding across all bands in the particular Service Area. In 1800MHz and 900MHz band auction, for the Service Area of Delhi & Mumbai, the bidder had to meet the minimum requirement of 4 in at least one of the bands i.e. If the bidder was bidding for 4 blocks in 1800MHz band, in which case, he could bid for 1 block in 900MHz band and vice versa.

21 Closing Rule The final clock round will be the first clock round in which:  The Auction Activity Requirement is 100%; and  There is no bidding activity in any of the Service Areas.

22 Round scheduling and Extensions Minimum round length of 60 minutes. Minimum time between rounds will be 20 minutes. Extension budget of 240 minutes (4 hrs) made available for each bidder. Extension budget to be reduced in 10-minute intervals. Bidders can extend any clock round by a maximum of 1 hour (6 10-minute intervals), subject to availability of extension budget.

23 Information Policy for the Clock Rounds – I At the end of each clock round (and for each Service Area) information circulated to all bidders will be confined to:  Clock Round Price in the round  Aggregate demand in the round  Excess demand in the round  Clock Round Price in the following round At no stage during the Clock Rounds, will the names of the bidders submitting their bids be announced. At the end of the Auction, all information about the bids and the bidders will be released.

24 Security Measures Security of electronic auction system is protected by SSL encryption, digital certificates and various passwords. Qualified bidders to procure a Digital Signature Certificate issued by any of the valid Certifying Authority approved by Controller of Certifying Authorities in India. Maximum of four Users permitted from each bidding Company to access the EAS. Qualified bidders to procure two Digital Signature Certificates - One for Digital Signing and Second for Encryption for each user. Qualified Bidders have to provide a maximum of four Public Static IP Address, from which only they can access the EAS. A login-id and password required.

25 STQC Audit and Certification The following activities carried out by STQC: Functional Testing / Audit Performance Testing Application Security Vulnerability Assessment Penetration Testing Process Audit as per ISO Compliance verification as per CVC, IT act and GFR guidelines.

26 Changes incorporated in the 1800MHz/900MHz bands (March, 2013) Auction Bidding restriction in the Service Area of Delhi & Mumbai for bidders categorized as New Entrants or Renewal Licensees. Upper limit was increased to the total number of blocks put up for auction. Cap put based on band-wise holding and total holding of the respective bidders. Priority Ranking to the Renewal Licensees.