Base price slashed 30% for spectrum unsold in 4 circles

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SummaryThe empowered group of ministers on telecom headed by finance minister P Chidambaram on Friday decided to lower by 30% the reserve price for spectrum in the four circles — Delhi, Mumbai Karnataka and Rajasthan — that did not receive any bids in the auctions held last month.

The empowered group of ministers (EGoM) on telecom headed by finance minister P Chidambaram on Friday decided to lower by 30% the reserve price for spectrum in the four circles — Delhi, Mumbai Karnataka and Rajasthan — that did not receive any bids in the auctions held last month. It also decided that the reserve price for spectrum in the 900 MHz band would be twice that of the price for 1800 MHz. The government plans to conduct both the auctions — 1800 MHz and 900 MHz — simultaneously by March 2013. The auctions for 900 MHz would be held only for Delhi, Mumbai and Kolkata circles because these licences come up for renewal in November 2014.

The EGoM did not take any decision regarding spectrum in the 800 MHz band, which is basically used for CDMA services where no operator had participated in the auctions held last month.

The decision to lower the base price was taken after the failure of auctions in the 1800 MHz band where, apart from not receiving any bids in the four circles, the government was able to mop up only Rs 9,407 crore against the budgeted R40,000 crore and a minimum target of R28,000 crore. Though it has unsold spectrum in the remaining 18 circles also, it has decided not to lower but to stick to the auction-determined prices in these circles.

“The EGoM met on Friday and we have decided to auction the 1800 MHz band in four circles — Delhi, Mumbai, Karnataka and Rajasthan — and 900 MHz band in Mumbai, Kolkata and Delhi,” telecom minister Kapil Sibal said. He added that a decision on the pricing has been taken and “we will now be moving the Cabinet for the approval on the pricing and we have also decided that we will complete the auction process within FY13”.

However, analysts said despite the reduction the government does not stand much chance to get bids in the four circles as it is still too high for any new player. A reduction of 50% would have attracted new players to bid for these circles.

“The four circles have high tele-density and are difficult markets for new players. A 30% reduction in the reserve price would not be attractive for any new player. For incumbents, participating does not matter much because they already have spectrum. The government needs to lower the entry barrier for new players to get in these circles which it has once again failed to do,” said a telecom analyst.

If these four circles once again do not elicit any bids, it would create a problem for the government since it needs auction-determined prices to levy a one-time charge on incumbent operators for spectrum held beyond 4.4 MHz. Industry players said that the government would be left with no choice but to lower the price once again.

Analysts said that the price of 900 MHz spectrum is also high and it remains to be seen how the two affected players – Bharti Airtel and Vodafone – bid. The government has decided that operators having 900 MHz can retain 2.5 MHz spectrum after matching the bid price and can bid for another 2.5 MHz. However, analysts said that since their networks in Delhi and Mumbai are capacity-based rather than coverage-based, they won't lose much by either surrendering the 900 MHz or not bidding for it at all. Their strategy may be shaped depending on how their competitors, who currently do not have 900 MHz spectrum, plan their strategy. “If competitors plan to bid, then the incumbent holder would not like to lose the 900 MHz spectrum considering its usage for data services in future,” said an analyst.

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