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Curtain call on spectrum puzzle

New Delhi, Nov. 22: The government has decided to auction radio waves for mobile telephony in the 900MHz and 1800MHz bands at reserve prices that are up to 25 per cent higher than those recommended by the telecom regulator Trai in September.

A high-powered ministerial panel, headed by finance minister P. Chidambaram, today accepted the Telecom Commission’s recommendation that the reserve prices ought to be higher than those set by Trai in the two coveted spectrum bands that have hosted 2G players until now.

The spectrum auction is likely to be held in the third week of January, telecom minister Kapil Sibal told reporters after the meeting.

As a result, the reserve price for 1MHz of pan-India spectrum will work out to Rs 1,765 crore against Trai’s recommendation of Rs 1,496 crore — an increase of almost 18 per cent.

The reserve prices in the three metros — Delhi, Mumbai, and Calcutta — will be 25 per cent higher in both the 900MHz and 1800MHz bands.

Back in September, Trai had slashed the reserve price of 2G spectrum in these bands by as much as 65 per cent as it wanted to re-ignite telecom companies’ interest in bidding for the airwaves after two failed auctions in March this year and November last year.

Earlier this month, the Telecom Commission had rejected Trai’s lowball prices, fearing that this could snowball into another controversy if the government failed to garner a minimum of Rs 11,000 crore that it had anticipated in the budget for this fiscal.

The new reserve prices are, however, 37 per cent lower than Rs 2,375.41 crore that was set in the failed auction in March.

An operator will be allowed to bid for a minimum of 5MHz in the 900MHz band. For the 1800MHz band, Sibal said a decision would be taken on the amount to be auctioned after consulting the department of telecom (DoT) about spectrum availability.

“We have to finalise the total quantum of spectrum in the 1800MHz band that has to be put up for auction. That would be decided hopefully at the end of the coming week,” Sibal added.

The empowered panel of ministers, however, did not take up merger and acquisition norms that were cleared by the Telecom Commission.

The Telecom Commission had approved telecom mergers between entities that would end up with a combined market share of up to 50 per cent. The existing cap is 35 per cent.

Officials said the new base price per MHz in the 1800MHz band for Delhi would work out to Rs 218.90 crore, Mumbai at Rs 206.74 crore and Calcutta at Rs 73.13 crore, which is 25 per cent higher than the base price recommended by Trai. The regulator had recommended Rs 175.12 crore for Delhi, Rs 165.39 crore for Mumbai and Rs 58.50 crore for Calcutta.

Similarly, in the 900MHz band, the base price per MHz will be Rs 359.65 crore for Delhi, Rs 327.50 crore for Mumbai and Rs 125.27 crore for Calcutta. Trai had recommended Rs 287.72 crore for Delhi, Rs 262 crore for Mumbai and Rs 100.22 crore for Calcutta.

“We have also asked Trai to give us price recommendations for the 800MHz band,” Sibal said.

Trai had recommended against selling this band, arguing there could be few takers for it. The Telecom Commission has, however, argued that since there is at least one taker, it should be put up for auction.

Sibal said the ministerial panel had also decided against reserving spectrum held by existing players in the 900MHz band which are due to be refarmed next year when the telecom licences come up for renewal after a 20-year tenure.

The empowered committee seemed to feel an auction instead of reservation or automatic renewal was fairer. However, incumbent players such as Airtel and Vodafone could go to court if they are forced to give up their lucrative spectrum in the 900MHz band in Delhi, Mumbai and Calcutta.

Vodafone and Airtel have 8MHz each in Delhi. Vodafone and Loop Telecom hold 8MHz each in Mumbai, while Bharti has 6.2MHz. In Calcutta, Bharti and BSNL have 6.2MHz each, while Vodafone holds 7.8MHz.

On spectrum use charges, the minister said the existing regime would continue. At present, the levy ranges from 3-8 per cent of adjusted gross revenue, depending on the amount of spectrum held by a company. Trai had proposed levying a flat charge of 3 per cent on operators.

Sibal said the method of payment for the spectrum auction would be the same as before: 30 per cent upfront payment for the 1800MHz band and 25 per cent for 900MHz.

“The reserve price determined for 1800MHz and 900MHz spectrum remains high in our opinion due to the sector’s profitability remaining well below the expected margins,” said Mohammad Chowdhury, leader- Telecom at PwC India.

“However, established operators need to extend the use of spectrum which is coming up to the end of its 20-year validity. And so we will see targeted auction activity this time around. Spectrum is their lifeblood to continue operations.”

The telecom minister also said, “The EGoM has agreed in principle to trading in spectrum”. But left it to the Trai to work out guidelines.

The telecom regulator will be asked to formulate how much of a firm’s spectrum holding can be traded and at what price. It will also determine what the government’s share of the trading proceeds will be.

India’s largest bank SBI, which had taken part in the Trai consultations, has suggested that spectrum trading should be through bourses or a common trading platform so that it is transparent and allows for efficient utilization.

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