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Cabinet clears decks for spectrum auction in Feb

The Union Cabinet on Monday finalised the reserve prices for the 800-, 900- and 1,800-MHz telecom spectrum bands and said the 2,100-MHz band would be auctioned simultaneously with the other bands in February.

The auction will possibly be one of the largest of its kind.

At the base price fixed by the Cabinet, the government aims to garner Rs 64,840 crore by auctioning airwaves in the 800-, 900- and 1,800-MHz bands. Of this, the exchequer is expected to get Rs 16,000 crore this financial year, as companies will pay for the airwaves in instalments, according to a statement by the government. The estimated earnings are much higher than the Rs 9,355 crore projected in the Budget.

The income will be higher as spectrum in 2,100-MHz band will also be auctioned. The Department of Telecommunications (DoT) had earlier projected to get about Rs 5,000 crore by selling this spectrum in FY15. But if the government auctions all spectrum (5+15MHz) in this band, the income will be much higher.

The move to auction 2,100-MHz spectrum brings some relief for telecom operators, who have been asking the government to auction additional spectrum for commercial use. For this band, the primary contention related to a plan that the defence ministry give 15 MHz of this spectrum in return for an equal amount of 1,900-MHz spectrum, which the DoT had kept aside for the expansion of CDMA operators. The telecom and defence ministries have given in-principle approvals to the swap arrangement.

Telecom Minister Ravi Shankar Prasad said the government intended to auction third-generation spectrum in the 2,100-MHz band simultaneously with other spectrum. “What had been pending for many years — five MHz in the 2,100-MHz band from defence — we have been able to do it,” he said.

Telecom operators were, however, hoping for about 20 MHz in the 2,100-MHz band.

The reserve price for 2,100-MHz will be finalised by the Cabinet once the Telecom Commission gives its recommendations. The commission is scheduled to meet on January 7 to deliberate on the suggestions of a DoT committee that has reviewed the recommendations of the Telecom Regulatory Authority of India (Trai) on valuation and pricing of this spectrum.

On December 21, Trai had suggested a base price of Rs 2,720 crore per MHz pan-India for 2,100-MHz spectrum, 22 per cent lower than the base price of the same spectrum in the 2010 auction. It has also suggested all bands be auctioned simultaneously.

“The reserve price approved is Rs 3,646 crore pan-India per MHZ for 800-MHz; Rs 3,980 crore for 900-MHz band pan-India (excluding Delhi, Mumbai, Kolkata, and Jammu & Kashmir); Rs 2,191 crore for 1,800-MHz pan-India (excluding Maharashtra and West Bengal),” the government said in a statement.

The prices fixed by the Cabinet, based on recommendations by the Telecom Commission, are higher than what Trai had recommended. The regulator had suggested the base price for the 1,800-MHz spectrum (20 circles) be kept at Rs 2,138 crore per MHz; for 900-MHz (18 circles, where existing licences will be due for renewal) at Rs 3,004 crore per MHz; and 800-MHz (pan-India) at Rs 3,104 crore per MHz.

The Cabinet has increased the base price for the 900-MHz band by 32.5 per cent compared to what Trai had suggested; for 800-MHz band, it increased the reserve price by 17 per cent and 2.4 per cent for 1,800-MHz.

For operators, the increase in reserve prices has come as a dampener. “The decision to conduct simultaneous auctions is encouraging. This will ensure additional spectrum for the operators and they would be able to finalise the auction strategy in a more efficient way. However, the reserve price and the quantum of spectrum to be auctioned in 2,100-MHz needs to be clarified as early as possible; five MHz, as suggested by our minister, won’t suffice the needs of telcos,” said Rajan Mathews, director general, Cellular Operators Association of India.

He added the association was very disappointed with the increase in the reserve price for the auction. “Trai had done a rigorous job while determining the base price for the auction of the spectrum. Its assessment was reasonable; so, we are disappointed that the final reserve price has been fixed higher than that.”

Meanwhile, a source at the Department of Telecommunications (DoT) said a DoT committee had suggested the Telecom Commission make a back-reference to the regulator to reconsider the reserve price for the 2,100-MHz band, as this was somewhat low.

Experts fear the move to back-reference the price of 2,100-MHz spectrum to Trai could delay the finalisation of the auction of this spectrum, forcing the government to delay the entire auction. This could have an adverse impact on telecom operators, who might see their prices hit the roof.

The Telecom Commission had recommended the base price for each MHz of 800-MHz spectrum at Rs 3,646 crore, of 900-MHz at Rs 3,695 crore and of 1,800-MHz at Rs 2,191 crore, based on Trai suggestions. In February, 103.75 MHz of airwaves will be auctioned in the 800-MHz band in all service areas; 177.8 MHz in 17 service areas in the 900-MHz band and 99.2 MHz in 15 telecom zones in the 1,800-MHz band.

As 29 licences of service providers Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications are set to expire in 2015-16, these operators are expected to battle it out during the auction.

Budget 2014-15 had projected overall revenue from the telecom sector this financial year at Rs 45,471 crore, 16.7 per cent higher than the interim Budget estimate. Of this, Rs 14,355 crore was estimated to come from the sale of spectrum (including Rs 5,000 crore from the auction of the 2,100-MHz band).

The auction of airwaves in the 800-MHz, 900-MHz and 1,800-MHz bands is likely to take place by February 23 and the notice for inviting applications could be issued this week. A mock-auction for prospective bidders has been scheduled for February 19 and 20. The government has appointed Mjunction Services as the auctioneer.

Sources said though the dates of various events in the run-up to the auction had been changed, it had been ensured the date of the actual auction wasn’t.

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