DoT panel questions TRAI's method for 3G auction base price

A DoT panel, which is looking into TRAI's recommendation on 3G spectrum price, has questioned the methodology for arriving at base rate of Rs 2,720 crore per megahertz for these airwaves, sources said.
The Telecom Regulatory Authority of India on December 31 had recommended this rate for 3G spectrum. This is about 19 per cent lower compared to the price paid by service providers in the 2010 auction.
The pan-India per Mhz price paid by telecom companies was Rs 3,350.11 crore but TRAI took a figure of Rs 3,349.87 crore, sources added.
The panel, headed by Department of Telecom (DoT) Member technology, is believed to have said that the last auction-determined price for a spectrum band should be the guiding benchmark for determining the reserve price for that band in a subsequent auction.

"TRAI has used this methodology in case of 1800 Mhz (known as 2G spectrum) band reserve price. However, it is not clear as to why TRAI has not adopted this method of benchmarking with last auction price of 2010 while recommending the reserve price of 2100 Mhz band (3G)," sources said, quoting the panel's report on this matter.
Inter-ministerial panel Telecom Commission in its meeting on January 7 decided to sent recommendations back to TRAI to reconsider or clarify its stand on spectrum price.

The other points on which TC has sought clarification include maximum quantum of spectrum a company can purchase, timeline for network roll-out, payment terms, annual spectrum charges etc.

The base price recommended by TRAI is about 80 per cent of the mean value of different prices calculated using four methods to compute the valuation of 3G spectrum.
These methods include index based price, 0.83 times valuation of 1800 Mhz (2G) spectrum band, producer surplus model (based on net saving of operator after expenditure for providing services) and approach based on growth in mobile Internet usage.
Countering TRAI's suggestion of determining reserve price for 3G spectrum at 80 per cent of average valuation, the panel is believed to have mentioned that for auctions held in February 2014, the government decided not to use this factor in case of prices in Metro and category A service areas.

Delhi, Mumbai and Kolkata are counted as metro telecom service areas and category A service areas include Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu.
The panel has suggested index price based on SBI Prime Lending Rate as one of the options where as TRAI used SBI base rate.