Delhi, Mumbai spectrum will cost a bomb - and more cash upfront

New Delhi: Delhi is the most coveted telecom circle in the country but Mumbai is not far behind either. According to the Information Memorandum (IM) released by the Department of Telecom (DoT) this morning for upcoming 2G and CDMA spectrum auctions, Delhi has the highest reserve price of Rs 693 crore (per block of 1.25 Mhz) and Rs 900 crore for GSM and CDMA respectively.

Delhi includes local areas served by Delhi, Ghaziabad, Faridabad, Noida, and Gurgaon telephone exchanges. The next most pricey circle is Mumbai at Rs 678 crore and Rs 881 crore, respectively. Mumbai means local areas served by Mumbai, Navi Mumbai and Kalyan telephone exchanges.

Also, as per the IM, bidders will have to deposit Rs 443 crore each to bid for 2G spectrum in the 1,800 Mhz band across the country. And the base price for acquiring pan-India spectrum is Rs 14,000 crore for 5 Mhz in the 1,800 Mhz band and 1.3 times higher for the 800 Mhz band.

If one were to compare the amount of money that any potential bidder would have to shell out as earnest money deposit (EMD) for these auctions against what was needed when companies were bidding for 3G auctions in 2010, it quickly becomes clear that a lot more is at stake this time around.

In the 2010 auctions, EMD was only Rs 40 crore each for Delhi, Mumbai and any of the category ‘A’ circle; this time a bidder would need to deposit Rs 68.50 crore to become eligible to bid for either Mumbai or Delhi circles for 1,800 Mhz (or 2G) spectrum. For CDMA bids, the EMD is even higher at Rs 89 crore. A telecom industry expert pointed out that the EMD is much higher this time since the base price for 2G auctions is much higher than the 3G auctions two years back.

The IM makes it clear that the government has settled for variable spectrum usage charges for both 2G and CDMA operators. So the charge for 2G bidders would vary from 3 percent for up to 4.4 Mhz of spectrum going all the way up to 8 percent for more than 12.2 Mhz. For CDMA operators, it begins at 3 percent for 5 Mhz and goes up to 8 percent for spectrum more than 12.5 Mhz.

The IM says that for calculating spectrum usage charge, there shall be a minimum AGR (adjusted gross revenue) which shall be not less than 5 percent of the bid amount. And that the calculation of spectrum usage charges shall be on the basis of minimum AGR or the actual AGR, whichever is higher.

An operator who may participate in the upcoming auctions pointed out that this provision of 5 percent AGR would make it difficult to bid successfully in the upcoming auctions. “Let’s presume the auction-determined price for 2G is Rs 20,000 crore. This means the bidder will have to pay a minimum spectrum usage charge of Rs 1,000 crore even if its revenue is less than this amount. "

Then, as per the IM, a notice inviting auctions (NIA) would be issued on 28 September and the last date for the submission of applications would be 19 October. E-auctions begin for 2G, or the 1,800 Mhz band, on 12 November but they will be held for 800 Mhz band only two days after the 2G auctions have closed.