GSM telecom service providers, who are meeting Communications Minister Kapil Sibal on Tuesday, will question three key recommendations of the Telecom Regulatory Authority of India (Trai) on the re-auction of 2G (second-generation) spectrum.
These would include the assumption that the base price for 1,800 MHz spectrum must be 80 per cent of the final discovered price. They will also question the regulator’s calculation of the reserve price, based on the final discovered price of 3G (third-generation) spectrum auctioned two years earlier. Instead, operators will push for alternatives, such as basing the reserve price on the auction price for Broadband Wireless Access (BWA) spectrum, which is much lower and also of high value, since it can support 4G (fourth-generation) services. They say while 3G operators paid Rs 3,350 crore for 1 MHz of spectrum, BWA operators forked out only Rs 642 crore for the same amount.
Two, they will ask for reduction of the reserve price so that it is between 15 to 20 per cent of the final price as discovered by the regulator, based on previous auctions.
Third, suggest an alternative auction methodology, based on the highest revenue share offered by an operator.
The department of telecommunications (DoT) has already asked the regulator to look for an alternative method to auction spectrum. The operators will also question the Trai recommendation on “refarming” the 900 MHz band, as going beyond the Supreme Court judgment, which had mandated the regulator to prepare rules for auctioning of 2G spectrum after the cancellation of 122 licences by the court.
The meeting will be attended by chief executive officers representing GSM operators, including Bharti Airtel, Vodafone, Idea Cellular and Aircel.
GSM operators say there is no basis to peg the base price at 80 per cent of the final price, going by experience. In the 3G auction, the reserve price was about a fifth of the final price, when only four blocks of 5MHz were auctioned. In the BWA auction, it was about 14 per cent of the final price when two slots of 20 MHz were auctioned.
The reserve price in the 3G auction varied as a percentage of the winning price from 10 to 99 per cent (Delhi/Mumbai & Jammu & Kashmir) for 3G and from seven to 85 per cent (Delhi/Mumbai & West Bengal) for BWA.
“Our submission is simple. As Trai has determined the economic value of spectrum and given a calculation as to how much the government will make, it should look at the Indian auction experience and fix the reserve price at 20 per cent of its assumed final price, rather than 80 per cent,” says a top GSM company executive.
The operators will also question why the regulator went for a 3G base auction price and not the BWA price, which was actually the last auction and involved the advanced 4G technology. They argue the Notice Inviting Application for the 3G auction, which formed the basis of the current reserve prce,must the reserve price for future auction of 3G spectrum or BWA spectrum which takes place within 12 months from the date of completion of the current round should use the successful bid amount in the current round as the base price.
Says a senior executive of a top company: “There are various conditionalities involved. The first condition is with 3G 2.1 GHz spectrum or 2.3 to 2.4 GHz BWA spectrum auction or where the auction is in the next 12 months. None of these are applicable in the current instance, in which we are talking of 1,800 MHz auctions.”
Operators will also say the 900 MHz ‘refarming’ proposal by Trai has no relation whatsoever with the Supreme Court judgment and is also not in consonance with a technology-neutral environment and licence conditions. They will argue the justification of spectrum liberalisation for a forced 900 MHz refarming is also completely unjustified, with there being a lack of an ecosystem now for even 3G services. Handsets are only about four per cent of the total cost. Liberalisation will happen by itself under market forces in a technology-neutral environment.
Some operators will also ask for changes in the method used in the 3G auction, which forced the price of spectrum to go up very substantially. They will argue the condition of all circle auctions ending together, along with the mandatory increment for every round for even circles with no activity, led to distortion.