The Department of Telecom (DoT) is expected to make a fresh reference to sector regulator Trai on spectrum pricing, after the flop show of 2G auctions which finished this evening.
CNBC-TV18 quoted senior sources to say that this reference could be made as early as Friday.
There are several issues that need to be thrashed out with respect to spectrum pricing, now that it has been made abundantly clear that the auctions were a dismal failure at the current 2G (1800 mhz band) reserve price of Rs 14,000 crore for 5 mhz of spectrum.
First, in most of 22 telecom circles, the reserve price was not exceeded in these auctions so market experts say this technically means there is no market discovered price in these auctions. The reserve price was not exceeded because there was less demand compared to supply. Now, Trai could decide to reprice spectrum in these circles, perhaps at a lower price.
Second, the 2G base price is the barometer on which pricing of other bands-800 mhz CDMA and 900 mhz for refarming-is based. So resetting the base price for 2G auctions could be another possibility but it is as yet not clear if this would mean a re-auction of the allotted spectrum also.
Bharat Bhargava, telecom partner at Ernst & Young, said the dismal performance of 2G auctions was no surprise and that auctions have gone along expected lines.
"Reserve price was too high, it was linked to the 3G prices of 2010 but 3G and the current 2G auctions have very little in common," Bhargava said.
Rajan Mathews of COAI welcomed the government's move to make a fresh reference to Trai, saying this would give credence to future spectrum allocation.
Even Telecom Minister Kapil Sibal suggested that there was danger in linking 2010 prices to the 2G auctions of 2012, saying his ministry went entirely by what sector regulator Trai had recommended as far as spectrum pricing was concerned.
"Had we gone by the Trai recommendations made earlier (when reserve price was suggested at Rs 18,000 crore), we would have had no bidders at all," the minister said.
So did Sibal want the auctions to flop, so that he could retain his zero loss theory?
The Trai's initial pricing recommendations were made when JS Sarma was heading the body and the recommendations on lowering the reserve price from Rs 18,000 crore to Rs 14,000 crore were made by Sarma's successor Rahul Khullar? So is it safe to assume that now, when DoT will refer spectrum pricing back to Khullar, many telecom circles will become more affordable?
Also, there is every possibility that spectrum in 800 and 900 mhz bands also becomes cheaper. But the industry, as of now, is keeping its fingers crossed.