NEW DELHI: The telecom department (DoT) will press for a 17% increase in the base price for 2G spectrum bids over the rate proposed by Trai, further adding to the woes of mobile phone companies that were hoping the government would dilute the recommendations of the regulator.
A DoT panel studying Trai’s proposals on spectrum auctions has concluded that reserve price for second-generation airwaves in the 1800 MHz band should be revised to Rs 4,245 crore per unit (on a pan-India basis), said a senior official. Trai has proposed a base rate of Rs 3,622 crore per unit.
In another step that will upset the industry, the DoT panel has also rejected the regulator’s proposal to allow mobile phone companies to stagger their payments for spectrum bagged through the bidding process. It is also of the opinion that mobile phone companies must not be allowed to mortgage spectrum to raise funds from financial institutions.
A final decision on DoT’s position will be taken at a meeting of the Telecom Commission on Thursday. This will be communicated to the Empowered Group of Ministers on spectrum, headed by Finance Minister Pranab Mukherjee, which has been tasked with the responsibility of finalising the guidelines for the auctions.
The amendments suggested by the high-powered DoT panel will come as a big blow to the telecom industry, which has lobbied hard with the government for rejecting the regulator’s recommendations.
Telcos have warned that if these proposals are accepted, call tariffs would go up between 30% and 100%, and the viability of the industry would be badly hit. Foreign players such asNorway’s Telenor andRussia’s Sistema have said they will not participate in the upcoming auctions if Trai’s proposal to auction airwaves at 13 times the price at which airwaves were awarded in 2008 is accepted.
A senior DoT official clarified that the department was not recommending a hike in the minimum price for the upcoming 2G auctions, but was only seeking to apply Trai’s formula in the right fashion.
“Trai had determined the reserve price in the 1800 MHz band based on the 3G auction price of 2010. We feel that 3G auction price must be indexed for a period of two years to determine the present value of spectrum. During this period, State Bank ofIndia’s PLR rates have been between 11.75-14.75% and therefore the revised figure works out to Rs 4,245 crore for every unit of 2G spectrum in the 1800 MHz band,” this official explained.
This official also added that the panel was against allowing telcos to pay for airwaves over a 12-year period since ‘it did not want a repeat of the 1999 experience, when telcos had bid exorbitant amounts for permits, and subsequently failed to pay up’.
The regulator had proposed that winners pay only 33% of the bid amount up front, followed by a two-year moratorium, with the remaining money to be paid in 10 equal installments annually.
It had also suggested that mobile phone companies should be allowed to mortgage spectrum since the ‘telecom sector required huge capital investment periodically and it was necessary for telecom players to have access to adequate funds from financial institutions’.
Earlier this month, the telecom department had asked Trai to reconsider its proposals on four key issues – auctioning only 5 MHz of airwaves that restricts the sale process to just one slot; the reserve price; rollout obligations (setting up towers in certain number of locations); and refarming (distribution of airwaves in the 900 MHz band that is largely held by incumbents).
But the regulator in its May 13 communication told DoT that it stood by its suggestions. DoT subsequently appointed a committee to study the regulator’s proposals and submit its report to the Telecom Commission.
The DoT panel has suggested that a minimum of 10 MHz of 2G airwaves be auctioned this year, a move that will allow a minimum of two players to win back their permits, but added that the Mukherjee-headed panel of ministers should decide on the number of slots that should be put up for sale.
The DoT panel has presented three scenarios for the EGoM to consider – auctioning only 5 MHz in every region as suggested by Trai; putting an additional 55 MHz of 2G spectrum that will be vacated by the defence forces and increasing the number of slots to up to 5 in every region, and not reserving frequencies for refarming, a step that will increase the number of slots to 3-7 in every circle.