EGoM readies a Sistema solution

Written by fe Bureau | New Delhi | Updated: Jan 8 2013, 07:13am hrs
Kapil SibalKapil Sibal, telecom minister
Base price for 2.5 MHz at R2,900 cr vis-a-vis R1,600 cr paid by it in 2008

The empowered group of ministers (EGoM) on spectrum pricing on Monday virtually resolved the Sistema issue by recommending up to 50% reduction in the base price of the CDMA spectrum in the 800 MHz which did not see any participation in the auctions held in November 2012. If the Cabinet accepts the EGoMs suggestion of a 50% cut (the other option is of a 30% cut), then Sistema Shyam will have to pay around R2,900 crore after adjustment for 2.5 MHz spectrum as against around R1,600 crore it paid in 2008.

The government has been in a fix over the cancellation of Sistemas licences by the Supreme Court since the Russian government, which holds a stake in the company, has demanded that its investments be protected. Sistema did not join the November auctions calling the price too high. It has also filed a curative petition in the Supreme Court which may come up for hearing on January 10.

The base price of CDMA spectrum was 1.3 times that of GSM spectrum in the 1,800 MHz band.

The pan-India base price of GSM spectrum was R14,000 crore; so at 1.3 times, it was set at R18,200 crore. A 50% reduction means a fall to R9,100 crore for 5 MHz of pan-India spectrum.

Sistema currently has 2.5 MHz spectrum, which is sufficient to run CDMA networks and for this quantum, it would need to pay Rs 4,550 crore. If it participates in the auctions, the government would adjust its entry price of Rs 1,600 crore paid in 2008 so it would have to pay only Rs 2,900 crore. Even if the company wants to bid for 5 MHz spectrum, it is certain that it would not go for all the 22 circles; so its costs would come down considerably.

When contacted, Sistema Shyam declined comment.

Two other CDMA operators Reliance Communications and Tata Teleservices are not likely to participate in the bids though they did not comment officially. The two operators have 5 MHz spectrum and for 50% of it would have to pay a one-time charge. Since they also provide GSM services, it is quite likely that they would refund the CDMA spectrum to the government rather than paying any one-time charge since the CDMA spectrum is not liberalised and average revenue per user is much lower than GSM services.

Meanwhile, the EGoM headed by finance minister P Chidambaram also finalised the schedule for auctions which would sell the unsold spectrum in the 1,800 MHz band from the first round and spectrum in the 900 MHz band. All the auctions for which announcement has been made today will be held in March 2013, telecom minister Kapil Sibal told reporters after the EGoM meeting.

The auction for the 1,800 MHz band in four circles where bids were not received in November 2012 will be put up for auction. The reserve price will be 30% lower than the reserve price that was fixed in November 2012 auction, Sibal said, adding the EGoM has decided to conduct auction in the 800 MHz band in all circles since no bidder participated in that band in the November auction. We will take the recommendations to the Cabinet and it will decide on the reserve price.

Sibal said that for 900 MHz, the quantum of spectrum that will be put up for auction is 15 MHz each in Delhi and Mumbai and 12.5 MHz in Kolkata.

The Cabinet on December 13 had approved the reserve price for 900 MHz band in Delhi and Mumbai at twice the revised reserve price for the 1,800 MHz band and for Kolkata it would be twice the price obtained in November auction.

In 1,800 MHz band, quantum of spectrum put up for auction will be 15 MHz in Delhi and Mumbai, while for Karnataka and Rajasthan, it will be 10 MHz with topping up provision of 3.75 MHz as in November 2012 auction, Sibal said.

The last round of spectrum fetched the exchequer just Rs 9,407 crore, as against government expectations of around Rs 28,000 crore, on account of high reserve prices.