High 2G reserve price is least of telcos problems, says Trai

Written by Rishi Raj | New Delhi | Updated: Jul 17 2012, 07:20am hrs
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Trai chairman Rahul Khullars presentation before the empowered group of ministers (EGoM) on telecom last week virtually stating that a high reserve price would not have any major impact on consumer tariffs has been read as an indication that there would not be much of a rethink on the issue by the government.

However, sources who attended the EGoM meeting told FE that Khullar also made the point that aggressive bidding for 3G spectrum in 2010 expecting high demand was the root cause of telcos troubles. This created fresh problems relating to liquidity and leverage issues with the industry in general and some operators in particular.

Sources said that Khullar told the panel headed by home minister P Chidambaram that operators were not talking about the real issues affecting them and were instead linking reserve price to tariffs when there was no relationship between the two.

It was decided at the time of 3G auctions that the final bid would become the base price for the next auctions. The final bid for pan-India 3G spectrum was R16,751 crore and Trai fixed R18,110 crore as reserve price for pan-India spectrum in the 1,800 MHz band in the forthcoming 2G auctions.

Though the government had budgeted around R35,000 crore from auctioning 3G spectrum, it ended up garnering R67,719 crore as operators bid aggressively. However, even two years after the auctions and most of the telcos launching their services, subscriber numbers are a meagre 12 million. Meanwhile, balance sheets of most operators have been stretched due to loans raised to pay for spectrum.

Analysts say it remains to be seen how the EGoM handles industry-related issues concerning liquidity when it meets Wednesday and whether it endorses the reserve price or suggests additional measures. It has already approved a crucial Trai recommendation which allows operators to mortgage spectrum allocated to them with banks and financial institutions to raise funds. In case of any default, banks have the right to sell this spectrum in the market but under the guidance and supervision of the department of telecommunications.

However, operators have a different take on high 3G bids. They maintain that expensive bids for 3G spectrum happened because in 2008, the government had allocated around 550 MHz spectrum to nine new operators without any auction at old rates of R1,651 crore.

This had virtually eroded any chances of incumbent operators getting clean spectrum. So, they bid aggressively at the first given opportunity. Today, theres no such demand for spectrum.

Issues relating to raising of funds by operators the weaker ones in particular whose balance sheets are over-leveraged arises even if they choose to skip auctions.

This is because they would need to pay a one-time charge for the spectrum they hold, though from what point 0 MHz, 4.4 MHz or 6.2 MHz has still not been decided. The EGoM is expected to decide on this as well.