A high-powered ministerial panel on Friday approved hiking by up to 25 per cent the reserve or start price for the auction of mobile phone spectrum in January.
An Empowered Group of Ministers (EGoM) headed by Defence Minister A K Antony agreed with the recommendation of the Telecom Commission to better regulator TRAI's suggested reserve or base price for the auction of spectrum in the 1800 MHz and 900 MHz bands used by GSM operators such as Bharti Airtel and Vodafone.
The panel did not take up merger and acquisition norms. The EGoM also asked the Telecom Regulatory Authority of India (TRAI) to suggest a base price for the 800 MHz spectrum, which is used by CDMA operators such as Sistema.
TRAI had not recommended a reserve price for the 800 MHz band, saying there was no need to auction these airwaves now.
The Telecom Commission had earlier this month suggested fixing a minimum Rs 1,765 crore per MHz as the price for pan-India spectrum in the 1800 MHz band, 15 per cent higher than the TRAI's suggested rate of Rs 1,496 crore.
The base price for 900 MHz should be 25 per cent higher than what the TRAI had recommended, the EGoM said.
Spectrum in this band will cost a minimum of Rs 360 crore per MHz for Delhi, Rs 328 crore for Mumbai and Rs 125 crore for Kolkata.
"The EGoM met today and we took a final decision on the reserve price and the EGoM has accepted the reserve price recommendations of the Telecom Commission," Telecom Minister Kapil Sibal said.
Even after the increase, the reserve price is lower than the failed auction of November, when spectrum in the 1800 MHz band was offered at a base price of Rs 2,800 crore per MHz. An operator can bid for a minimum of 5 MHz in the 900 MHz band. For the 1800 MHz band, the Minister said a decision will be taken on the quantum to be auctioned after consulting DoT about spectrum availability.
"We have to finalise the total quantum of spectrum in the 1800 MHz band that has to be put for auction. That would be decided hopefully at the end of the coming week," Sibal said.
The minister said there will be no reservation for existing operators in the 900 MHz band. "As far as 900 MHz auction is concerned, there is going to be no reservation. All those who have 900 MHz will be participating in the auction," he added. Sibal said the auction is likely to be held around January 21-22.
"Mergers and acquisitions matter couldn't come up today. We have to clear the principles of auction first. It will come up as soon as possible, hopefully, in the next meeting," Sibal said.
On spectrum usage charges, the minister said the existing regime will be followed. The current levy ranges from 3 to 8 per cent of adjusted gross revenue, depending on the quantum 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 1800 MHz band and 25 per cent for 900 MHz.
The government expects to garner over Rs 11,300 crore from the auction, according to the 2013-14 budget. The minister said the government expects to realise more than Rs 40,000 crore from the spectrum auction, one-time spectrum fees and other levies on airwaves.
The EGoM also approved the trading of spectrum. "In principle, we have accepted trading of spectrum. The guidelines will be issued by TRAI. We will wait for the guidelines and as and when they come, we will implement them," Sibal added.
Commenting on the reserve price, PwC India Leader Telecom Mohammad Chowdhury said, "The reserve price determined for 1800 MHz and 900 MHz spectrum remains high, in our opinion, due to the sector's profitability remaining well below the expected margins for mobile operations in emerging markets."
"This, coupled with uncertainty around CDMA spectrum pricing, M&A guidelines not yet finalised and rupee instability, will condition auction interest," he added. Deloitte Haskins & Sells said ignoring the TRAI's recommendations may reduce interest for the auctions.
"By ignoring the TRAI recommendations and increasing the base price, this series of auctions may have reduced interest. However, these auctions are unlikely to have the same fate as the last auctions," Deloitte Haskins & Sells Partner Hemant Joshi said.
Joshi added there may be reasonable demand for spectrum, considering that it is required to provide good quality services. "Trading of scarce spectrum would be positive for the sector," he added.
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