EGoM cuts spectrum reserve price sharply, no decision on M&A norms

So auctions for the 1800 mhz and 900 mhz spectrum bands will be held in January, at prices which are sharply lower than in earlier auctions. An Empowered Group of Ministers (EGoM) on Friday approved a sharply reduced reserve price for both spectrum bands, though the price is a bit higher (about 18 percent more) than what sector regulator Trai had recommended. Along with one-time fees from operator, the government is hoping to mop up Rs 30,000-Rs 40,000 crore through the January auctions.

Telecom Minister Kapil Sibal said all recommendations made by the Telecom Commission on pricing in these two spectrum bands have been accepted by the EGoM but for any auction in the 800 mhz band, Trai will be once again asked for base price recommendations soon.

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[caption id=“attachment_1244749” align=“alignleft” width=“380”]  Union Telecom Minister Kapil Sibal. Image courtesy PIB[/caption]

The minister also made it clear that no decision was reached in today’s meeting on merger and acquisition norms for the telecom sector but the contentious Spectrum Usage Charge (SUC) issue will be decided by his ministry first and then placed before EGoM at another meeting.

The spectrum base prices approved are: pan India reserve price of Rs 1,765 crore per megahertz (MHz) of spectrum in the 1,800 MHz frequency band used for basic mobile phone services. For the premium 900 MHz band, which will be sold only in three key circles of Delhi, Mumbai and Kolkata, the price will be Rs 813 crore in total. That is 25 percent higher than the regulator’s suggested price, but 53 percent lower than the previous auction. The 900 MHz band is crucial for Bharti Airtel and Vodafone as they must bid for spectrum in Delhi and Mumbai zones to renew their licences beyond November 2014.

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Sibal also made it clear that apart from SUC and merger and acquisitions norms, the EGoM also needs to be consulted over how much spectrum is actually going to be put up for auction in the 1800 mhz band. “DoT will work this out and come back to the EGoM,” he said.

EGoM’s decisions on spectrum pricing would be music to telcos, who have been vociferous in their demand of lower base prices. In the two auctions which have been held since the licenses granted by former telecom minister A Raja were cancelled by the Supreme Court, less than a fourth of the expected revenues were generated in the first round. And in the second round of auctions, only one operator-Sistema Shyam Teleservices-participated by buying spectrum in the 800 mhz band. So the second auction was seen as a failed one.

By lowering prices substantially, the government is ensuring at least much better participation by telcos than before. But issues remain. The biggest being legal challenges and controversies surrounding the 900 mhz spectrum band which is currently held by the big three telcos. The DoT wants them to return it in circles where licenses are coming up for renewal and either pay the current market price for winning it back or buy the cheaper 1800 mhz spectrum instead. Telcos are vehemently opposed to this process, called ‘refarming’. Then, the EGoM today approved the stand suggested by Trai that no spectrum be reserved for any of the telcos in the 900 mhz band and they should be asked to bid for every megahertz of this expensive spectrum.

Another contentious issue is spectrum usage charge. While some operators are happy with the current 3-8 percent slab, some others agree with Trai recommendation that it be brought to a flat 3 percent slab.

So an industry friendly decision on spectrum pricing alone will not solve the tangled mess that is Indian telecom today.