DoT dials Trai on base price after auction flops

Written by Rishi Raj | New Delhi | Updated: May 31 2013, 07:09am hrs
After two failed auctions, the department of telecommunications (DoT) wants fresh recommendations to be sought from the Telecom Regulatory Authority of India (Trai) regarding the reserve price for sale of spectrum in the third round of auctions. A note to this effect has been put up before telecom minister Kapil Sibal. This will subsequently need approval from the empowered group of ministers (EGoM) on telecom headed by finance minister P Chidambaram.

The matter will be discussed at the next meeting of the EGoM and once approved, Trai will be asked to send in fresh recommendations on fixing reserve price for the sale of spectrum, a DoT official told FE.

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The latest move to seek fresh recommendations from the regulator follows a note from Planning Commission deputy chairman Montek Singh Ahluwalia to Sibal early April, urging that after two rounds of failed auctions, fresh recommendations on reserve price be sought from the Trai or else a third failed auction would adversely impact the investment climate and the government's credibility. Ahluwalia is also a member of the EGoM. Ahluwalia had blamed auction failure on high base prices and had urged that changed market realities should be taken into account. Recently, a draft audit report by the Comptroller and Auditor General also blamed extremely high and artificially determined reserve price for the auction failure.

The Supreme Court has directed the government to conduct auctions for the balance around 285 MHz spectrum in the 1,800 MHz band spread over 22 circles, roughly providing 5 MHz to an operator. While cancelling 122 licences granted in 2008, the SC in February, 2012 had said the spectrum so vacated should be put up for auction. However, the government had put up only 220 Mhz spectrum in November 2012, of which only 127.50 MHz was sold. The government got a paltry R9,408 crore out of it. A second round of auctions was planned in March where the reserve price was reduced by 30% by the EGoM, but no bidders came forward to participate.

Sources said that broadly, Trai would be asked to take into account the recent auction experience, changed market conditions and any other factors that may be material to recommending fresh reserve price. This is in line with what Ahluwalia's note had suggested.

He had also suggested that in future, the auctioned spectrum should be made tradable. From an economic efficiency point of view, tradability will only ensure greater economic efficiency which, in turn, will mean higher revenues to the government on account of higher spectrum usage charges because of better use and also higher profits. Making spectrum tradable will also increase auction realisation, which will help mobilise additional revenues in 2013-14, a factor which is important for the finance ministry, Ahluwalia had written.

DoT sources said that based on the EGoM advice, Trai may also be asked to look into this aspect. So far, DoT has been opposed to spectrum trading though it has favoured spectrum sharing.

Industry analysts feel a revised reserve price in sync with the changed market realities may solve much of the problems in the sector. Apart from being successful in selling spectrum in the 1,800 MHz band, the government may be able to refarm the more efficient 900 MHz also. It planned to do that in March auctions, but since the base price for 900 MHz band is 1.5 times the base price of 1,800 MHz, there were once again no takers.

Telecom operators currently have a total debt of around Rs 250,000 crore.