The telecom regulator has slashed the minimum price for the auction of air waves by up to 80 per cent, marking a significant attempt at turning around the telecom sector, in which investment has all but dried up.
The Telecom Regulatory Authority of India’s (Trai’s) recommendations have come after two previous attempts at selling air waves or spectrum failed due to high reserve prices. The failed auctions themselves came at the end of two bitter years of protracted dispute on policy in the sector that sent valuations of companies hurtling down.
Existing players including Bharti Airtel, Idea Cellular Ltd and Vodafone now stand to gain the most, while the interests of Reliance Communications Ltd and Tata Teleservices too will not be harmed. The government can also expect significant earnings from the auction of spectrum in this financial year itself, significantly boosting its non-tax revenues.
However, Trai has also decided that no spectrum would be reserved for the existing players when their licences expire beginning 2014. All the three GSM players — Idea Cellular, Vodafone and Bharti Airtel — have approached the Delhi High Court, claiming that the terms of their licenses allow for an extension.
In other recommendations, the regulator has opened the field for trading of airwaves, a decision that will help banks which have extensive exposure to the sector.
Investments have dwindled in telecom, once the shining sector of Indian reforms. The introduction of new players by former telecom minister A Raja, the damning audit report by the CAG, and the Supreme Court order cancelling 122 disputed licences provoked foreign investors to withdraw and sue the central government for going back on its commitments.
Issuing the recommendations, Trai chairman Rahul Khullar said the new price regime reflected a total change in approach “from the previous pricing regime”. The recommendations cover only the 900 Mhz and 1,800 Mhz bands, most used by telecom operators. Trai has slashed the combined price for spectrum in the 900 MHz band in Delhi, Mumbai and Kolkata circles by close to 80 per cent to Rs 650 crore per MHz from the Rs 3,074.18 crore earlier.
The biggest reduction of 81.38 per cent is in the Mumbai circle, where the floor price has been reduced to Rs 262 crore per MHz from the Rs 1,404.28 crore recommended under former Trai chairman J S Sarma.
The new set of recommendations assume that a lower price allied with liberal usage of spectrum would encourage companies to bid aggressively, and thus produce better returns for the government. Accordingly, Khullar has cut the spectrum usage charge to 3 per cent from the 8 per cent levied currently.
The new recommendations have to be approved by the Telecom Commission. “We are only recommending a reserve price and it is not the final price. Let a market determined price come through the auctions and then we will decide what to do,” Khullar said.
The government needs to conduct the third round of spectrum auction for 1,800 Mhz to comply with the Supreme Court order of February 2012 in the 2G spectrum allocation case.