EGoM opts for realistic base price for telecom auction spectrum

Written by fe Bureau | New Delhi | Updated: Nov 24 2013, 00:04am hrs
Prospects for the telecom sector brightened on Friday with the government set to auction spectrum at a relatively low base price almost 50% lower than the prices fixed during the March auctions. The government might soon allow telecom firms to pay a flat spectrum usage charge a move that will lower costs and encourage consolidation, telecom minister Kapil Sabil said, adding that these charges, together with the spectrum auctioned, would fetch R40,000 crore. Spectrum trading, which will give operators more 3G spectrum and boost data services, has also become a reality.

An empowered group of ministers (EGoM) on telecom headed by finance minister P Chidambaram endorsed the reserve price for auction in the 1800 and 900 MHz bands on the lines finalised by the Telecom Commission on November 6. These prices will need to be ratified by the Cabinet before the government readies to hold the auctions from January 21.

As reported earlier, the Telecom Commission had broadly gone along with the tlecom Regulatory Authority of Indias recommendations on the reserve price it had increased the rates by 18% for 1800 MHz and 25% for 900 MHz spectrum band. In fact, in doing so the TC had basically converted the value of spectrum for each circle computed by the Trai as the base price. Trai had kept the reserve price at 80% of the value of the spectrum.

Though the newly drafted liberal mergers and acquisitions guidelines were not the agenda of the EGoM on Friday, it has allowed spectrum trading, which also has the potential to bring about consolidation in the crowded telecom services market. Trai will now frame the rules for spectrum trading.

The only area where clarity is needed and which would determine the course of the bids is with regard the uniform spectrum usage charge where Trai has recommended a flat charge of 3% for all spectrum bought through auctions and capped it at 5% in cases of mixed allocation.

The matter did not come up before the EgoM as the TC had said that discussions on the subject with the finance ministry is required before a decision is taken. The government needs to provide clarity on the issue before it invites application for the bids.

We are continuing with differential spectrum charges as of now. But we want to take a final call on flat rates before the auction, Sibal said.

He said that there would be no auctions of the 800 MHz in January because the EgoM decided to ask Trai for providing a reserve price for the same. The regulator has so far declined to provide the reserve price here, stating that since theres no demand for this spectrum there should be no auctions. Instead, according to it the government should explore the possibility of expanding this band, used currently by CDMA operators, to include GSM as well as that would yield more demand from operators and, thus, revenues for the government.

This means the government will now have to send a fresh reference to the Trai leading to a fresh exercise by the latter, which would be time consuming.

According to the prices approved by the EgoM on Friday, base price in the 1800 MHz band in the eight circles of Delhi, Mumbai, Kolkata, Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu goes up by 25% over the ones recommended by Trai. For the remaining 14 circles, the prices are what Trai recommended. Due to a hike in base price in the eight circles, the pan-India price has gone up by 18% to R1,763 crore per MHz against the R1,496 crore recommended Trai.

In the 900 MHz band, the revised price stands at R359 crore for Delhi, R327 crore for Mumbai and R125 crore for Kolkata compared to R288 crore, R262 crore and R100 crore, respectively, proposed by Trai.

Commeting on the EGoMs decision, Prashant Singhal, partner in a member firm of Ernst & Young Global, said, Auction prices are fairly steep for there to be any significant traction in the auctions. R40,000 crore seems to be unrealistic considering the health of the sector and participation from the companies. Clarity in M&A guidelines, implementation of spectrum trading and sharing of spectrum is must for a successful auction.