The Telecom Regulatory Authority of India (Trai) on Monday proposed a high reserve price for telecom spectrum to be auctioned, at nearly Rs 3,622 crore (Rs 36.22 billion) per MHz in the 1,800-MHz band (for GSM services).
The regulator liberalised the spectrum regime by allowing operators to use spectrum for any services.
The reserve price for auction of spectrum is close to 10 times higher than what operators had paid in 2008 for acquiring licences at Rs 1,658 crore (Rs 16.58 billion), which came bundled with 4.4-MHz 2G spectrum.
The base price for 3G spectrum was fixed at Rs 3,500 crore (Rs 35 billion) for five MHz in 2010, which would make the recommended price five times higher than the 3G base price.
The recommended price is also eight per cent higher than what was paid by the winning operators for 3G spectrum, which came to Rs 3,350 crore (Rs 33.5 billion) per MHz. The move follows the Supreme Court ordering the cancellation of 122 new licences issued in 2008 and the auction of vacated spectrum in four months.
The development may come as a blow to companies whose licences were impacted by the SC order and were looking at the auction to win them back. Newer players such as Uninor and Videocon are offering services through spectrum in the 1,800-MHz band. Sistema Shyam, a CDMA player, uses the 800-MHz band.
For the 800-MHz (for CDMA services) and 900-MHz (for GSM services) bands, Trai has proposed a reserve price of about Rs 7,244 crore (Rs 72.44 billion), double of that kept in the 1,800 MHz band.
"An assessment of the value of the available spectrum in different bands on the basis of the reserve price works out to about Rs 7 lakh crore," Trai said.
The auction of 3G spectrum in 2010 had fetched Rs 67,700 crore (Rs 677 billion). The government has fixed Rs 40,000 crore (Rs 400 billion) as the target from the auction of spectrum this year.
Operators have expressed disappointment over the proposed pricing mechanism. COAI (Cellular Operators' Association of India) Director General Rajan Mathews said, "The reserve price has been kept at a very high base. This will kill the telecom industry, create roadblocks for new players and make it further difficult for existing operators. The current mobile tariff at one paisa per second will be impossible if operators bid at such high prices."
New player Uninor, a joint venture between Norway's Telenor and Unitech Group, said, "It seems obvious some of these recommendations will create a severe negative impact on the entire industry. It is up to the political leadership to
Vodafone said, "Vodafone India is deeply concerned. We believe several of these recommendations are retrograde and, if accepted, will do irreparable harm to the industry.
This will hamper the ability to connect the unconnected and goes against the objectives of the National Telecom Policy of ensuring improved rural teledensity and the right to broadband." Other players did not comment on the development.
Analysts echoed the views and said the development could lead to the end of the low-tariff regime.
Deloitte Haskins & Sells Partner Hemant Joshi said, "The Indian telecom sector is reeling under hyper competition due to overcapacity and is under a cash strain due to high prices paid for 3G spectrum and the capital-intensive nature of the industry.
If the guidelines are accepted by the government in totality, the business models of the incumbents and new operators would have to be redrawn, as operators would have to pay significantly higher for spectrum, which may ultimately lead to an upward revision in tariffs."
KPMG Partner Jaideep Ghosh said the hike in reserve prices appeared significantly on the higher side and was likely to be a strain on bidders' resources, especially with a highly competitive market landscape.
"The proposed auction is in blocks of 1.25 MHz, which will be inadequate to commence or continue operations. A higher reserve price and the resultant auction price are likely to lead to an increase in tariffs."
In its recommendations, Trai said operators would be allowed to convert their existing 1,800-MHz spectrum into liberalised spectrum on payment of the auction-determined amount.
And, to create a uniformly liberalised environment with a level playing field, the government may consider incorporating a suitable incentive package for service providers in NTP (New Telecom Policy) 2012 to encourage all of them to migrate immediately to the new regime.
The regulator's recommendations are not binding on the government. A final decision will be taken by the department of telecommunications (DoT), which is expected to send the views to an existing empowered group of ministers (EGoM) on spectrum.
Communications minister Kapil Sibal said telecom companies would have 20 years of opportunity and there would be enormous possibilities in the new regime.
DoT secretary R Chandrasekhar said, "The reserve price is not high, given the circumstances and opportunity. Even the terms of payment are softer. We will stick to timeline as indicated. Liberalising spectrum involves a forward-looking approach."