The long 2G saga may be nearing a conclusion with the announcement of spectrum auction terms. Operators will bid for 5 MHz in each circle, with a reserve price of Rs 2,800 crore per MHz for GSM spectrum in the 1800-MHz band (that is, a base price of Rs 14,000 crore), and Rs 3,640 crore per MHz for CDMA spectrum in the 800-MHz band (Rs 18,200 crore). Only 13.75 MHz of spectrum per bandwidth per circle is to be auctioned in this round, implying allocation of no more than two or three licences. Hence, subsequent rounds of allocations will be necessary. While the reserve price is lower than the telecom regulator’s recommendation of Rs 3,600 crore per MHz, it is, of course, much higher than the Rs 1,650 crore charged for 4.8 MHz allocation (Rs 344 crore per MHz) in 2008, when 122 licences were issued to nine 2G operators, and subsequently cancelled by the Supreme Court. In fact, the 2G reserve price is four times as high as the 2010 reserve of Rs 700 crore per MHz for 3G auctions in the 2100-MHz band — 3G bids hit Rs 3,350 crore per MHz. Easier terms are on offer, too. Upfront, operators will pay 25 per cent of the CDMA licence fee, and 33 per cent of the GSM fee. The rest is payable over the next 12 years. Also, in order to offer lenders comfort, spectrum may be mortgaged and sold off directly by creditors in case of default.
Nevertheless, operators are unhappy. Industry associations claim operators must raise an additional Rs 3.2 lakh crore in debt financing over that 12-year period. In addition to licence fees, operators will also pay three to eight per cent of annual revenues in usage fees based on actual utilisation. The government will probably ask the Supreme Court for an extension to its August 31 auction deadline. Hence, operators whose licences were cancelled must also be granted an extension on the deadline of September 7, when they are supposed to wind up operations. It is also possible that some operators could seek legal options to challenge the terms, causing more delays. They may also opt to bid for some select markets,instead of looking at pan-India spectrum.
The 2G customer base comprises the vast majority of India’s 935 million mobile connections, according to estimates by the Telecom Regulatory Authority of India in June. About 35 million connections are 3G. Broadband wireless access (BWA) hasn’t been launched and 4G has negligible offtake. 2G GSM is voice-technology (CDMA-centric Sistema is the only 2G data-specific operator). Like it or not, operators must bid to stay in business. If new players like Reliance Infotel enter the picture, the auction could trigger a winner’s curse. Industry has claimed that voice charges could rise by up to 30 paise a minute if everything is passed on. More realistically, given the price-elastic nature of telecom traffic, operators will try to keep tariffs low. Mergers and consolidations look likely in the near future. The New Telecom Policy 2011 caters for that.
The government is walking a tightrope. It risks making Russia, Norway and the Emirates unhappy. The corruption charges make it inexpedient to price spectrum low. At the same time, it cannot alienate this large a user-base by being held responsible for a large tariff hike. Nor can it overlook the high positive externalities of the industry. In the circumstances, it seems to have taken pragmatic decisions.