2G auction: Delhi should be priced lower than TN

If the government really wants to sell remaining 2G spectrum, it may be left with no option but to lower the price in key telecom circles, sector experts have said.

After the flop show of the just-concluded auctions, which would net just about Rs 9,400 crore in Government kitty or less than a fourth of the earlier estimate of over Rs 40,000 crore, the Department of Telecom (DoT) is widely expected to refer the matter of spectrum pricing back to sector regulator TRAI.

[caption id=“attachment_525786” align=“alignleft” width=“380”]  Interestingly, however, spectrum pricing for the 2012 auctions has not quite followed this hierarchy. AFP[/caption]

So the expectation is that TRAI will lower pricing, specially of those circles where no one placed a bid and arrange a re-auction for these circles. Telecom experts said today that in all probability, TRAI would look at reducing the price of four such circles-Delhi, Mumbai, Karnataka and Rajasthan.

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According to revenue potential, Tamil Nadu should be the most expensive circle, followed by Delhi, and Mumbai should be the fifth most expensive with Rajasthan coming in at the 10th spot.

Interestingly, however, spectrum pricing for the 2012 auctions has not quite followed this hierarchy.

The reserve price for Delhi is Rs 693.06 crore whereas that for Tamil Nadu is less than half at Rs 306.09 crore. Mumbai is priced at Rs 678.75 crore, just next to Delhi whereas Karnataka is Rs 330.12 crore and Rajasthan at Rs 67.08 crore.

The experts pointed out that from the 3G auctions in 2010 onwards, Delhi and Mumbai circles have been the priciest - they cost more than two times the cost of acquiring spectrum in Tamil Nadu.

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As per calculations based on revenue in the June quarter of this year, Tamil Nadu accounted for the highest revenue at Rs 3,376 crore followed by Delhi at Rs 3,355 crore.

Mumbai is at the fifth position with Rs 2,832 crore. Karnataka’s revenue stood at Rs 2,789 crore where Rajasthan was at Rs 1,932 crore.

“This pricing anomaly arose in the 3G auctions because of the way the auctions were designed. And since the 3G auctions were used as a base to calculate the base price for the 2012 auctions, the anomaly has been carried forward. Ideally, circles should be priced according to revenue potential.”

So going by this logic, Tamil Nadu should be the most expensive circle, followed by Delhi, Maharashtra, Andhra Pradesh, Mumbai, Karnataka and Rajasthan at the 10th spot in this revenue hierarchy. An official at a leading telco said if spectrum prices in key circles such as Delhi and Mumbai were reduced significantly, it would make sense to bid for these circles in a fresh auction.

Official at another telco said there was no chance of any lower pricing, which is done circle wise, getting into a legal mess since the Government will not be lowering the pan-India base price but would be only reducing prices in those circles where no bids were received.

Speaking to reporters earlier today, Telecom Minister Kapil Sibal said (on spectrum that remained unsold in the 2G auction): “Of course there will be an auction. There is no doubt about that. What procedure we follow for that auction is something that we will decide in another few weeks.”

GSM industry lobby Cellular Operators Association of India (COAI) has estimated that only about 35 percent of the total spectrum (only 27 percent in terms of reserve price) put up for 2G auction was actually bid for. None of the five telcos bidding for the spectrum made any offer for pan-India airwaves for which the reserve price was set at Rs 14,000 crore, a rate considered high by the industry.

In all, 101 out of the 144 blocks of spectrum on offer got bids. Metro cities of Delhi and Mumbai, which accounted for 40 percent of the base price of Rs 14,000 crore for 5 MHz of 2G spectrum, drew no bids.

Also, a similar exercise (of lowering the base price) would need to be done for the CDMA spectrum also since there are no takers for the 800 mhz band at the current prices.