Spectrum base price for next auction slashed 25%

Ministerial group shaves a quarter off March auction base price, but price still 18% higher than suggested by regulator Trai

The empowered group of ministers (EGoM) on telecom on Friday fixed the January 2014 auction reserve price for 1,800-MHz spectrum 25.8 per cent lower than what the government had set for the previous auction in March, which failed to get any bidder. The EGoM has set the base price for one MHz of pan-Indian spectrum in the 1,800-MHz band at Rs 1,764.79 crore for the next auction scheduled for January next year. 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 has taken the decision by accepting the recommendations of the Telecom Commission (TC). However, the reserve price for the same spectrum was about 37 per cent higher in the November 2012 auction. Following a poor response from operators in November, the government had reduced the price by about 30 per cent for March but it still failed to get any bidder.

Communications Minister Kapil Sibal said the EGoM headed by Finance Minister P Chidambaram had accepted the TC’s recommendation on the base price. The EGoM’s decision is final and does not require Cabinet approval.

In June, the EGoM had asked the Telecom Regulatory Authority of India (Trai) for its recommendations on the reserve price. The TC had earlier this month suggested that the reserve price be increased by 18 per cent over what the Trai recommended, after considering reports of an internal committee of the Department of Telecommunications (DoT). The 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.

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.

Experts say the price might still be steep. “The reserve price remains high in our opinion due to the sector’s profitability remaining well below the expected margins for mobile operations in emerging markets,” says  Mohammad Chowdhury, leader, telecom, PriceWaterhouse India.

Sibal said he hoped that 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 that the auction would be held as scheduled in January next year.   

In case of the 900-MHz band to be auctioned in Delhi, Mumbai and Kolkata, the EGoM accepted the TC’s base price, 25 per cent more than that suggested by the regulator. However, it has made one change — it will sell spectrum in blocks of one MHz each instead of 1.25 MHz.      

The EGoM has directed the DoT to refer the contentious issue of fixing a base price for spectrum in the 800-MHz band back to the regulator but with a fresh reference. The EGoM will also decide on the quantum of spectrum to be sold in all the bands in its next meeting. The Friday meeting, which went on for over two hours, did not take up the proposed merger and acquisition policy cleared by the TC.

The EGoM decision divided the industry as CDMA and dual-technology operators expressed concern that the auction of 800 MHz might not happen in January simultaneously with 900 MHz and 1,800 MHz.

“We are seriously concerned as to how much time the Trai will take to decide on the base price. This will be unfair to our members as many of them who are also interested in bidding for 900 MHz or 1,800 MHz won’t be able to take a macro decision if the 800 MHz auction gets delayed,” said Ashok Sud, secretary general of AUSPI.  

However, 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.”

TAKING A NEW CALL
Price of 1 MHz pan-Indian spectrum in 1,800-MHz band

Nov 2012 auction
Rs 2,799.99 cr

Mar 2013 auction
Rs 2,379 cr

EGoM decision
Rs 1,764.79 cr

The EGoM’s reserve price is 25.81% lower than the reserve price for the March 2013 auction and 37% lower than the reserve price for the Nov 2012 auction

TELECOM COMMISSION

* Suggested price Rs  1,764 cr

TRAI

* Recommended price Rs 1,496 cr

FRIDAY’S KEY DECISIONS

* EGoM accepts Telecom Commission recommendations on reserve price for 1,800-MHz and 900-MHz spectrum

* To ask Trai for suggestion on 800-MHz spectrum pricing

* No decision taken on merger and acquisition guidelines