Govt eyes substantial revenue from 2G auction

Could earn Rs 1.3 lakh crore over 12 years with staggered payment option, assuming all the offered bands find takers

The government could get at least Rs 133,600 crore over a 12-year period from the coming auction of 2G telecom spectrum if all operators opt for a staggered payment scheme as approved by the Cabinet.

It means the government would be able to meet the Union Budget target of Rs 40,000 crore from spectrum auction. This will go a long way in controlling the Budget deficit. The cream on the cake is the additional Rs 9,100 crore it will earn annually from instalments (after a moratorium of two years) for the next 10 years.

However, if all operators pay upfront, it could get much more this financial year than what was budgeted – a staggering Rs 79,400 crore. Only, it would then not have the assured revenue for the next 10 years from this auction.

To achieve these numbers, the auction price should go 1.4 times higher than the base price of Rs 14,000 crore for 5 MHz fixed by the government, which is more or less in line with the estimates of operators and by department of telecommunications officials. Also, all the spectrum on offer should find a buyer. And, operators will have to pay 12 per cent interest on their instalments.

Says senior telecom analyst Sanjay Chawla of JM Financial Institutional Securities, based in Singapore, who worked on the various scenarios of revenue: “Our belief is that all the offered spectrum in metro and A-category circles may not find takers, unless a surprise greenfield (new) telco like Reliance Industries enters the fray.” The news is that RIL will be a pan-Indian bidder.

The government has offered 13.75 MHz of spectrum in the 1,800 MHz band and as much as 5 MHz in the 700 MHz band for CDMA operators. It can accommodate three new operators, two being GSM, who’d be offered 5 MHz each and one CDMA player who’d get a minimum of 2.5 MHz.

Under the staggered payment option scheme, GSM operators in 1,800 MHz have to pay only 33 per cent of the auction price upfront and CDMA operators only 25 per cent.

After that, they get a two-year moratorium on payments. From the third year, they pay the balance in 10 instalments. However, as the cabinet decision is to ensure the net present value has to be protected, it has said operators have to pay interest every year, to be determined by the government.

New telecom operators who bid for 1,800 MHz have to fork out Rs 23,200 crore if they get spectrum at the base price of Rs 14,000 crore. If the price goes up 1.4 times, they need to fork out Rs 32,500 crore over 12 years for 5 MHz.

RISE IN REVENUE
	GSM-1800(5 MHz)	CDMA-800 (2.5 MHz)
% Initial payment	33	25
Moratorium period	2 years	2 years
Interest rate	12%	12%
Balance payment period	10 years	10 years
Aggregate payment over 12 years	23,200 crore	13,500 crore
Annual instalment	1,860 crore	1,350 crore
Numbers based on auction price being equal to reserve price but opeartor going for staggered payment Source:DoT,PIB and JM Financial

A new CDMA operator, who has to pay 1.3 times more than what a GSM one does, according to the auction rules, will need to fork out Rs 15,800 crore for 2.5 MHz of spectrum.