Floor Price for Spectrum Auction Fixed at Rs 14,000 Cr
The government today fixed a floor or minimum price of Rs 14,000 crore for auctioning pan-India mobile-phone spectrum, a decision old telecom players termed as "disappointing" calling the rates too high.

A meeting of the Union Cabinet, chaired by Prime Minister Manmohan Singh, agreed to price 5 MHz of airwaves in the 1,800 Mhz band at the lower end of the Rs 14,000 crore to Rs 15,000 crore reserve price band suggested by a ministers' group.

The price approved was 22 per cent lower than Rs 18,000 crore minimum rate suggested by sector regulator, TRAI. It was, however, 7 times higher than the price new companies had paid in 2008 to get spectrum from the then Telecom Minister A Raja.

Cabinet also accepted the Empowered Group of Ministers (EGoM) recommendation of pricing 800 Mhz spectrum at 1.3 times the rate of 1,800 Mhz band airwave, Telecom Minister Kapil Sibal told reporters after the meeting.

This translates into Rs 18,200 crore for pan-India spectrum.

Terming the decision as "disappointing", Rajan Mathews, Director General of Cellular Operators Association of India (COAI) -- a body of GSM operators like Airtel and Vodafone, said the move would lead of a 30 paisa per minute increase in mobile phone tariffs.

"The effect on finances is that an amount of Rs 320,000 crore of additional debt that will have to be laid on the industry," he said.

Cabinet also approved annual fee on spectrum, called spectrum usage charges, at existing rate which varies between 3 to 8 per cent of revenues earned by companies.

Asked if the government would be able to meet the August 31 deadline mandated by Supreme Court for auctioning of the spectrum freed from its order cancelling licences of 122 operators, Sibal said the EGoM is likely to meet on Monday.

Sibal said the auction schedule would be decided by auctioneer, who is to be selected shortly.

Agreeing with COAI on the reserve price being too high, AUSPI, a body of CDMA players, said, "It (reserve price) is still very high. It will definitely affect the tariffs".

KPMG Executive Director Jaideep Ghosh said the pricing is on the higher side and that tariffs for consumers, which have gone up recently, would continue to "firm up".

Ernst & Young Global Partner member Prashant Singhal said the policy is likely to create unnecessary barriers for new entrants aiming to bid for start-up spectrum, hence hampering competition.

Telecom companies whose licences were cancelled by Supreme Court in 2G scam and new companies seeking to start mobile telephony business will have to pay minimum of Rs 14,000 crore for 5 megahertz (Mhz) of airwaves frequencies on pan-India basis.

"The Cabinet approved reserve price of Rs 14,000 crore for 5 megahertz pan-India (spectrum) in 1800 Mhz band. The Cabinet also approved recommendations of the EGoM for reserve price of 800 Mhz at 1.3 times that of the 1800 Mhz band," Sibal said.

Therefore, companies bidding for airwaves frequencies in 800 Mhz band that are currently used for CDMA services, will have pay minimum of Rs 18,200 crore for pan-India spectrum.

The 1800 Mhz spectrum band is currently being used to provide GSM technology-based mobile services and frequencies in 800 Mhz band are being used for CDMA services.

However, the spectrum which will be purchased through auction be liberalised which means companies will be free to use any technology for any kind of services like 2G, 3G or 4G.

The apex court in February cancelled 122 telecom licences belonging to eight service providers including all permits of Uninor, Loop Telecom, Etisalat DB, Videocon, STel, 21 licences of Sistema Shyam, 9 of Idea Cellular and 3 licences of Tata Teleservices.

The new prices approved by Cabinet are up to 23 per cent lower than around Rs 18,200 crore reserve price for pan-India spectrum (in 1800 Mhz band) suggested by TRAI for the auction.

The Telecom Regulatory Authority of India (TRAI) had recommended a base price of Rs 3,622 crore per unit of spectrum, called MegaHertz. This base price translates to over Rs 18,200 crore for a pan-India spectrum for new companies.

The Empowered Group of Ministers (EGoM) had suggested setting a base or floor price at Rs 14,000-15,000 crore for for 5 Mhz of airwaves in auction.

The reserve price fixed would be a disappointment for the telecom industry which had been pitching for a 80 per cent cut in the reserve price suggested by TRAI. Spectrum auction at TRAI-suggested prices would lead to up to 100 per cent hike in mobile telephone charges, industry had said earlier.

"The existing slab rate for spectrum usage charges as recommended by EGoM as preferred option has also been approved by the Cabinet," Sibal said.

The other issue of charging spectrum held by existing telecom players was deferred.

"What to do with those telecom operators who hold 6.2 (Mhz) and beyond, how that is to be dealt with, what pricing arrangement should be made....Those issues are concerned... they have been deferred. We will await the judgement of Supreme Court to take final call on those issues," Sibal said.

The auction is crucial for companies like Uninor and Sistema Shyam Teleservices, who have time till September 7 to offer their services and after which will be forced to close down their operations in case they fail to get a licence.
Emerging story. Watch this space for updates as more details come in
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