Nod for re-auction of 1,800 MHz spectrum

Last Updated: Fri, Dec 14, 2012 04:25 hrs

The Cabinet today cleared the re-auction of the 1,800 MHz spectrum in three circles at a base price 30 per cent lower than what was fixed by the government in the auction concluded just a month ago.

In the 1,800 MHz band auction last month, Delhi's reserve price was set at a steep Rs 693.06 crore for each 1.25 MHz block. The base price for Mumbai was Rs 678.45 crore, while for Karnataka it was set at Rs 330.12 crore. The revision in the base price of the circles effectively means that the government has reduced the pan-India reserve price of 1800 MHz spectrum to about Rs 12,000 crore. The base price was fixed at Rs 14,000 crore during the November auction.

The high base price had prevented telcos from bidding in the circles of Delhi, Mumbai and Karnataka during the previous auction which was concluded in November, forcing the government to re-auction them once again and this time at a substantially lower price. The three circles are crucial as they constitute for a substantial portion of the auction revenue for the government as well as its earnings from revenue share. "I think there was more scope for a cut. With this cut, the government might see a repetition of the first round (which drew a lukewarm response)," Rajan Mathews, director general of the Cellular Operators Association of India, said.

Analysts said the high density in many of these circles - especially Delhi and Mumbai which are well above 100 per cent - might make such a high price for spectrum a non-viable proposition as there is hardly much scope for growth in the subscriber base and the only way to increase revenues is to increase average revenue per user.

"Clearly, 30 per cent is not enough and it is unlikely to motivate the incumbent operators to bid for these circles aggressively. The government had more scope and it could have revised the price based on detailed calculations. However, there might be demand for some slots as incumbents might be in need of additional spectrum to decongest their networks," said Hemant Joshi, partner, Deloitte Haskins & Sells.

But new players are most unlikely to be interested in bidding for these circles considering the high tele-density in these circles,_ said Hemant Joshi, partner, Deloitte Haskins & Sells.

The Cabinet endorsed the decision taken by the empowered group of ministers (EGoM) last week and also decided to auction the 900 MHz band in Delhi, Mumbai and Kolkata. In Delhi and Mumbai the base price of 900 MHz will be twice that of the 1800 MHz band base price as the auction determined price could not be arrived at as there were no bidders. For Kolkata the base price would be double of Rs 113.72 crore (for the 1.25 MHz slot) which is the auction determined price for the city.

The-20 year-licence of the operators in these three circles is coming up for renewal in 2013. Both the auctions will be completed by the end of March next year. Under a re-farming policy cleared recently, the government has allowed incumbent operators in these circles who own 900 MHz band to retain only 2.5 MHz of it and give back the rest to the government for auction, which will be accommodated in the 1800 MHz band when their licence comes up for renewal. However they have to pay the market determined price for the retained spectrum and can also bid for the 900 MHz spectrum. The logic is that the government wants to use the 900 MHz spectrum which is more spectrally efficient for 3G and 4G services than as being used currently for 2G services.

But no decision was taken on re-auctioning the 800 MHz band of CDMA spectrum, for which there were no takers earlier, as it has to be discussed in the EGoM.

If the government manages to get buyers in all the blocks available in the three circles , it would get Rs 9,529.12 crore, at the revised base price. Eight blocks are available for auction in each circle.

The circles _ Delhi, Mumbai, Karnataka _ in the 1,800MHz band accounted for more than 48 per cent of the pan-Indian reserve price but now they constitute only 39 per cent of the total pan India base price.

From the auction of 900 MHz band in the three circles, the government will be able to get little more than Rs 17,500 crore, if all the spectrum available after re-farming is sold. The government would have 11 MHz of spectrum for auction in the 900 MHz band for the Delhi and Mumbai circles and 9 MHz for the Kolkata circle.

The government would raise Rs 27,000 crore from the latest round of auctions. Last month, the government had managed to raise just Rs 9,407.64 crore by auctioning the 1,800 MHz band spectrum.

In simple terms it means that the government would get Rs 10,616 crore from the auction of 1,800 MHz and 900 MHz in the three circles based on the premise that all the spectrum available is sold and every operator opts for a staggered payment scheme offered by the government in this financial year. The government has permitted operators to pay only 33 per cent of the spectrum price up front and the rest in 10 equal instalments. The figure is a far cry from the budgetary target of Rs 48,000 crore which the government hopes to garner from the sector through auctions and one-time payment.

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