Cabinet nod for lower spectrum reserve price

The Cabinet on Monday approved the reserve price for the auction of 2G telecom spectrum, keeping it 25.8 per cent lower than the previous auction, as suggested by the Empowered Group of Ministers (EGoM) on telecom.

On November 22, the EGoM, headed by Finance Minister P Chidambaram, had decided to lower the base price for one MHz of pan-Indian spectrum in the 1,800-MHz band at Rs 1,764.79 crore for the auction scheduled in January.

For the auction in March this year, the government had set the base price for one MHz of pan-Indian spectrum in the 1,800-MHz band at Rs 2,379 crore. The EGoM had taken the decision based on the suggestions of the Telecom Commission. “The decisions will result in further efficient utilisation of the scarce natural resource of spectrum facilitating expansion of telecom services in the country,” the government said in a statement.

In November, Communications and Information Technology Minister Kapil Sibal had said the government would get Rs 30,000 crore to Rs 40,000 crore from the auction, the one-time fee and others in the financial year and the auction would be held as scheduled in January.

However, the base price for the same spectrum was about 37 per cent higher in the November 2012 auction, which received a muted response from telecom operators. Following that, the government had reduced the price by about 30 per cent for March but it failed to get any bidder.

The government will conduct auction in all 22 circles in 1,800-MHz band and in Delhi, Mumbai and Kolkata in 900-MHz band. For the 900- MHz band, it approved a rate about 53 per cent lower than the previous auction price. The reserve price for one MHz spectrum in 900-MHz band will be Rs 360 crore in Delhi, Rs 328 crore in Mumbai and Rs 125 crore in Kolkata. Licences will be due for renewal in November 2014 in these three circles.

The EGoM has also decided to auction 403 MHz of spectrum in the 1800-MHz band, which is about 41 per cent more than what the government had actually proposed earlier.

Following the poor response in the previous two auctions, the EGoM had, in June this year, asked the Telecom Regulatory Authority of India (Trai) for its recommendations on the reserve price. Trai had suggested a reserve price of Rs 1,496.92 crore for one MHz of 1,800-MHz spectrum, about 37 per cent lower than the reserve price offered in the March auction. However, the Telecom Commission decided to increase the reserve price based on the suggestions of a committee of the Department of Telecommunications (DoT). The DoT committee had earlier suggested two options — a price of Rs 2,203 crore or Rs 2,378 crore based on different methods of calculation for one MHz of spectrum. The EGoM price is 24-34 per cent lower than the committee’s suggestions.

After the EGoM decision, industry experts had said the reserve price might still be steep. A top executive of a leading GSM telecom company said, “I think we can live with the increase from what the Trai had suggested, though it is a bit high. We must move along.”

An analyst with PriceWaterhouse India had said the reserve price was high due to the sector’s profitability remaining well below the expected margins for mobile operations in emerging markets.