EGoM readies a Sistema solution

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Kapil Sibal, telecom minister Kapil Sibal, telecom minister
SummaryThe empowered group of ministers 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.

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 EGoM’s 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 Sistema’s 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

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