The inter-ministerial group (IMG) on telecom, which recently sent its recommendations to the government on remedial measures to help financially stressed telecom companies, has said that the approach to fixing reserve prices of spectrum should be modified or be made more reasonable and in line with international best practices. Basically, the IMG has been critical of the methodology that the Telecom Regulatory Authority of India (Trai) adopts while fixing the reserve price of spectrum for any auctions, which the government generally accepts. For instance, the practice is to take the price of the last auction as one of the factors to decide the reserve price of next auctions, which only serves to increase the reserve price, thus raising input costs for operators.
Experts FE spoke to said the IMG’s recommendation regarding adoption of international best practices for fixing the reserve price was very relevant and Trai should come up with fixed criteria to fix the reserve price, which is absent now. For instance, Trai and the government are aware of the revenue that accrues from each circle, so one way of fixing the reserve price could be based on the proportionate revenue of a circle. The other basis could be on the propagation characteristic of the band, like the 800 MHz band has the best propagation characteristic so the price of this band can be taken as a reference point and of other bands aligned with it.
If one looks at the reserve price fixed by Trai for the 2016 auctions, it does not show any systematic methodology with differing trends for different bands. In the 700 MHz band, the reserve price set was multiple times that of the 2010 auction-discovered prices. Most prices increased by a factor of 5 to 8 times, and for Assam it was 19 times. Similarly, for the 800 MHz band, the prices moved up by 2 to 3 times and for Kerala, Madhya Pradesh, Assam and Jammu and Kashmir, it increased by 4, 8, 10 and 5 times, respectively.
In the 900 MHz band the prices moved between 3 and 7 times. But in Uttar Pradesh (East), Rajasthan, West Bengal, Bihar, and Assam, the prices moved up by 11, 11, 8, 11 and 22 times, respectively. Similarly, in the 1800 MHz band, the price for Delhi and Mumbai decreased but in other circles increased approximately to twice that of the 2010 3G auctions. In the 2100 MHz band, the prices for Delhi and Mumbai fell slightly, but for rest increased by a factor between 1 and 2. Linking the reserve price with 3G auction prices was itself not proper, analysts said. This is because in 2010, three slots were chased by eight to 10 operators.
Further, operators bidding for 900 MHz were struggling to retain the continuity of their business, whereas for all others it was not the case. That is why the price of 900 MHz rose disproportionately compared to all other bands. In the case of the 700 MHz band, the reserve price was more than the 900 MHz band because Trai set the price as four times that of the 1800 MHz band without giving any clear reason. The IMG has noted that as a result of not following best practices in the 2016 auctions, most spectrum was sold at the reserve price. Against 2354.75 MHz of spectrum put to auction, only 964.80 MHz got sold. Against a total spectrum value of Rs 5.67 lakh crore at reserve price the bidding was muted as a result of which total bid value of only Rs 65,789 crore was received.