The Cabinet today cleared the reserve price for auction of 2100 MHz spectrum at Rs 3,705 crore for one MHz, as recommended by Telecom Commission, paving the way for the mega auction of airwaves from 4th March this year. The auction of spectrum in the 800, 900, 1800 and 2100 band is expected to fetch the government between Rs 90,000 crore to 100,000 crore.
The price accepted by the cabinet is over 35 per cent higher than what telecom regulator TRAI recommended at Rs 2,720 crore for 2100 MHz band. It had earlier rejected the regulator’s suggestion of auctioning 20 Mhz spectrum in this band and instead decided to offer only a fourth of that in the upcoming auction, a move which has peeved telcos who complain that it would lead to cut throat competition and high spectrum prices. Communications minister Ravi Shankar Prasad announcing the cabinet decision said that the auction will be “fair and transparent and there is adequate spectrum which has been offered “.
The Government, however, should be laughing its way to the bank. With telcos needing to pay 25 per cent of the auction price for 800 and 900 Mhz spectrum and 33 per cent for 1800 and 2100, the government should get over Rs 25,000 crore. That is much more than what Finance Minister Arun Jaitley had budgeted for in his interim Union budget of only Rs 14,355 from the auctions.
Also by postponing the auction of 15 Mhz in the 2100 band the government could get another over Rs 17,500 crore in 2015-16. That is because it can make around Rs 70,000 crore from selling the remaining 15 Mhz in the 2100 band next year-based on the fact that auction price in March will become the base price in the next auction. Based on TRAI formula the base price is calculated at 80 per cent of the discovered auction price.
Telcos however say that the government has not kept its promises on some key decisions which could have an adverse bearing on the auctions especially in planning for the next 20 years (the period of the new licence). They say that the Communications minister Ravi Shankar Prasad went back on his word of announcing the rules of spectrum trading and sharing as well as the mergers and acquisitions rules in December last year, well before the auctions so that they could be clear of their future strategy. .
Says Rajan Matthew, director general of Cellular Operators Association of India (COAI): “The government has created uncertainty amongst telcos by consciously holding back announcement of crucial policies after the auction, only so that they maximize revenue. Telcos now cannot plan on sharing or trading spectrum with other telcos so as to reduce their need for spectrum and also cut costs”
The auction is however crucial for incumbent operators like Bharti Airtel (six circles) Vodafone(seven circles), Idea (nine circles) and Reliance Communications ( seven cicles) whose licence comes up for renewal this year, and retaining their 900 MhZ spectrum is crucial for their business. However Bharti has already ensured against any failure in the auction by buying additional spectrum in 1800 in the last Februray auction in all the circles where it’s licence expires. Idea Cellular, which earns over 70 per cent of its revenues from these circles has also tried to do so except in Gujarat and UP (west). Vodafone however has to aggressively bid for retaining its 900 MHZ spectrum as it has not bought enough spectrum in the 1800 band earlier.
Some telcos however say that that the government decision to limit spectrum in 2100 to just one block of 5MHz might boomerang. “Frankly operators whose licence expires will concentrate only in retaining their 900 Mhz spectrum. Why should they bid for just one block of 2100 and over bid when they know there is three blocks coming next year and inter circle roaming in 3G is still in the courts. They might just wait and not participate in the 2100 auction at all forcing government to reduce prices as has happened earlier.”
The government however ended an eight year old battle between DoT and the defence when the cabinet on January 21, cleared a proposal of swapping 15 Mhz of spectrum in 1900 band with DoT with a similar amount controlled by defence in 2100.
However, this 15 MHz would not be included in the upcoming auction, as DoT said it will require one year before the band between 1700-2000 is harmonized.