EGoM cuts 2G spectrum auction base price 30%

Last Updated: Sat, Dec 08, 2012 04:46 hrs

The empowered group of ministers ( EGoM) on telecom today decided to cut the 1,800-MHz band spectrum auction reserve price by 30 per cent for four circles that did not attract bidders in November.

The ministerial panel, headed by Finance Minister P Chidambaram, also decided that the spectrum under the 900-MHz band would be auctioned in the Delhi, Mumbai and Kolkata circles. Both auctions would be held simultaneously.

Telecommunications Minister Kapil Sibal told reporters: "We will now be moving the Cabinet for the approval on the pricing, and we have also decided that we will complete the auction process within this financial year."

No decision was taken on the 800-MHz band of CDMA spectrum as it would require more discussion.

With the revision in base price, the government has reduced the pan-India reserve price to about Rs 12,000 crore, from the Rs 14,000 crore fixed for the November auction.

If the government sells all the blocks, it would get Rs 9,529.12 crore, at the revised price, from Delhi, Mumbai and Karnataka. Eight blocks are available for auction in each circle.

The four circles - Delhi, Mumbai, Karnataka and Rajasthan - in the 1,800-MHz band accounted for more than 48 per cent of the pan-Indian reserve price. The price for the 900-MHz band spectrum would be double of the auction-discovered price of 1,800 MHz spectrum. The price would be double the base price in circles that didn't get bidders.

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 refarming 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.

In the 1,800-MHz band auction last month, the government had set Delhi's reserve price at Rs 693.06 crore for each 1.25 MHz block. The base price for Mumbai was Rs 678.45 crore, for Karnataka at Rs 330.12 crore and for Rajasthan at Rs 67.08 crore.

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

This means the government would get Rs 10,616 crore (Rs 1,706 crore from November round and Rs 8,910 crore or 33 per cent of the estimated earning from the upcoming round) for the year. The figure is a far cry from the Budgetary target of Rs 48,000 crore.

Industry operators are not happy. Rajan Mathews, director general of the Cellular Operators Association of India, said: "The move is in the right direction. But there was more scope (for a cut). With this cut, the government might see a repetition of the first round (which drew lukewarm response). And, it is not clear on what basis the EGoM had taken the decision of a 30 per cent cut."

Analysts said the 30 per cent reduction would not help the government attract bidders in these circles.

"Even 30 per cent reduction in these circles is unlikely to motivate the incumbents to bid for these circles aggressively," said Hemant Joshi, Partner, Deloitte Haskins & Sells. "However, there might be some slots, if any, taken by incumbents as they might be in need of additional spectrum to decongest their networks."

Sivarama Krishnan, executive director, PwC India, said, "The government may need to, therefore, revisit the circles of partial bidding for a revision in pricing. The operators need to see a viable business case in markets that did not see successful bidding for total spectrum. Also, prolonging the CDMA pricing while offering 900 MHz may continue to split the industry."

These circles are saturated with more than 100 per cent tele-density, which might keep new entrants away from bidding.

Following the lukewarm response to the previous auction that ended last month, Sibal had said, "The government did not have a free hand in deciding the pricing and we should follow the market dynamics. Although we have reduced the recommended price, it was TRAI who set the base price as ordered by the court".

After the previous auction, Chidambaram had said that the government would be able to meet the budget target from the remaining auctions and refarming.

Interestingly, the government had earned a hefty Rs 67,719 crore from the 3G auction that lasted for 35 days.

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