New Delhi: A turn of phrase can have multiple interpretations and in the case of the base price for 2G auctions, vastly different financial implications! A report in the Economic Times on Tuesday cites minutes of the meeting of the recently held Empowered Group of Ministers (EGoM) to predict that the base price for the upcoming auctions is unlikely to be lowered. This report says that a new clause has been added to auction parameters “stating that the objective of the sale process will be to maximise revenue proceeds”.
But an online report in the Business Standard says that base price for the auctions could come down since the EGoM has “quietly modified the key objective of the auction. The text of the objective has been tweaked from revenue maximisation to maximising revenue but within set parameters determined by the government.” It goes on to say that these parameters, which will now be added, include affordability, increasing telecom density, and accessibility.
So will the base price for the auctions be reduced, maintained or hiked? Last month, the Telecom Regulatory Authority of India (Trai) stuck to its recommendation where base price was Rs 3,622 per mhz of spectrum, about 10 times higher than the price in 2008.
The Telecom Commission has thereafter suggested an even higher base price, saying Trai’s calculations were not entirely correct. And the EGoM, the final decision making body on price, is yet to take a call.
Besides different interpretations of similar phrases used in the minutes of the EGoM meeting, there are other factors which will determine what the base price for auctions will be and how would it impact the bottomline of telecom companies.
For one, the Trai is yet to submit an impact analysis of how this high base price would impact call tariffs, telco finances and India’s attractiveness as an investment destination. This analysis will form the basis for EGoM to finalise the base price. Also, a lot hinges on whether the price is determined for a 10-year validity (renewable for another 10 years) or is once again for a 20-year licence period.
Another factor which will impact telcos is whether the Union Cabinet okays a separate proposal — which suggests that all spectrum with incumbent operators above 6.2 mhz be charged retrospectively. If this is okayed, incumbents will have to pay for excess spectrum at the new, discovered price of the 2G spectrum. Besides, if any operator wants technology neutral spectrum, it will have to pay the new price for acquiring such spectrum.
So it is really quite difficult to fathom yet if the upcoming auctions will mean the death knell of the industry or will Trai’s base price be set aside and a lower benchmark used for calculating the base price.