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Spectrum price suspense over

New Delhi, Aug. 3: The Union cabinet today fixed the minimum base price for the auction of 5 megahertz (Mhz) of pan-India spectrum in the 1,800 Mhz band at Rs 14,000 crore — a reduction of Rs 4,110 crore from the benchmark proposed earlier by telecom regulator Trai.

The cabinet also allowed telecom operators to mortgage the spectrum with banks while raising loans from them to be able to back the bids they make at the upcoming auctions.

Moreover, companies winning the spectrum will have to pay only a third of the total price upfront and will be given a two-year moratorium after that. The remaining fees will have to be paid over a 10-year period in equal instalments.

Spectrum charge, the annual fees paid by mobile operators to the government as a percentage of their adjusted gross revenues, will be retained at the current 2 to 8 per cent slabs, depending on the quantity of radiowaves held.

“We have lowered the spectrum reserve price and retained the spectrum charge to ensure that revenues accrue to the government exchequer. At the same time, we are sending out a positive signal to the industry that India means business,” communications and IT minister Kapil Sibal told reporters after the meeting.

For airwaves in the 800 MHz band, which is used by CDMA carriers such as the Indian unit of Russian conglomerate Sistema and Reliance, the cabinet set the starting price at 1.3 times the 1800 MHz band, which is Rs 18,200 crore.

However, telecom companies are calling the base price an “extortion” instead of an auction. “The reserve price is too high and in direct violation of the Supreme Court directive,” said Sanjeev Aga, former MD of Idea Cellular, who also hinted that the decision could be challenged.

In February this year, the Supreme Court had quashed 122 licences in 22 circles that former telecom minister Andimuthu Raja had handed out to favoured players in January 2008. Aga said the court order clearly said all the licences should be put up for auction. However, the government was planning to auction only two slots per circle, thereby creating an artificial shortage to extract the best possible price. He argued that the Centre was “expropriating” some of the spectrum that already has been given, which was a clear violation of the Supreme Court order.

Industry lobby groups COAI and Auspi are also questioning the success of the auction at these base price levels, stating that “there may not be any aggressive bids from telcos at these prices”.

Industry players also said that all the available spectrum should have been put up for sale. While the government has decided to sell a total of eight slots of 1.25 MHz (10 Mhz) of spectrum in the 1800 MHz band, an operator needs a minimum of 5MHz, or four such slots, to be able to offer mobile telephony services in the country. This means only two players can buy spectrum in each circle.

After the Supreme Court verdict in February, the government has 500 Mhz of spectrum to offer which could accommodate at least four players in each circle.

Analysts said the service provider is also likely to pass on the higher costs (of buying spectrum) to mobile phone users, leading to an increase in wireless tariff. “It is highly likely that the operators will increase the tariff by more than 50 paise per minute on an average,” said Hemant Joshi, partner, Deloitte Haskins & Sells.

“The revised pricing would impact incumbents who are already reeling under the pressure of declining margins and rock bottom ARPUs (average revenue per user). Additional pressure on operators would result in unsustainable business operations and eventually lead to the de-growth of the sector,” said Prashant Singhal, partner at consultancy firm Ernst & Young Global.

Industry was also concerned about meeting the apex court’s deadline of August 31 for holding the spectrum auction..

“From media reports, it appears that the government is taking some positive steps to deal with these issues. However, we urge the government to do everything to conduct the auctions within the August 31 deadline,” said the Telenor spokesperson.

The auction is crucial for companies like Norway's Telenor-promoted Uninor and Sistema Shyam Teleservices which have been permitted to offer their services till September 7. After that date, they will be forced to close down operations if they fail to get a licence.

 
 
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