New Delhi: The Union cabinet cut the minimum price of 800 megahertz (MHz) spectrum, commonly referred to as the CDMA spectrum, by 50% to attract bidders to a planned auction of the airwaves in March, after a sale in November failed to draw bidders.
Telecom operators will now have to pay at least Rs.1,820 crore to acquire 1MHz of spectrum till date used in India to offer services based on the CDMA telecom technology standard.
The proposal to cut the price came after a group of ministers, headed by finance minister P. Chidambaram, recommended a 30% or 50% cut in the base price. The cabinet has already approved a 30% cut in the reserve price of spectrum in the 1800MHz band in telecom circles where no bids were received in the November auction. The circles include Delhi, Mumbai, Rajasthan and Karnataka.
“All the spectrum auctions should now be completed by 31 March,” Kapil Sibal, minister of communications and information technology, said after the cabinet meeting on Thursday. The spectrum auction is expected to start in early March.
Companies refrained from bidding for radiowaves in the 800Mhz band in the November auction. Tata TeleServices Ltd and Videocon Industries Ltd withdrew their applications saying the reserve price of Rs.3,640 crore per Mhz was too high.
“The government has realized that there was no business case for CDMA players with the earlier price. There is a question now that will there be a business case even after the 50% reduction in spectrum price,” said Hemant Joshi, a partner in consulting firm Deloitte Haskins and Sells. “The data play on this technology can result in active bidding participation.”
The government should have, in fact, gone for a steeper cut in the minimum price, said a spokesperson for Sistema Shyam Teleservices Ltd (SSTL), one of the operators that lost its licences after a 2 February 2012 Supreme Court verdict. The verdict cancelled 122 telecom licences and spectrum awarded to nine companies, after finding fault with a January 2008 allotment. SSTL provides services using the CDMA standard.
“The decision by the cabinet to reduce the CDMA reserve price by 50% clearly reflects the growing realization that demand for 800MHz is very limited. The decision taken is a step in the right direction. However, one would have expected a much greater reduction,” the spokesperson said.
The reduction in the reserve price is also likely to benefit older CDMA operators, including Reliance Communications Ltd (RCom) and Tata TeleServices. The two companies will now have to pay half the earlier amount as one-time fee for additional spectrum.
A senior official in the department of telecommunications (DoT) said the total minimum liability for the two telcos because of the change in reserve price is around Rs.3,000 crore, with around two-thirds of that coming from RCom.
The government expects to finalize the auction rules and procedure for the March sale by 11 February. Senior DoT officials also said the notice inviting applications would be out by the 31 January. The auction of unsold GSM spectrum will start by 11 March. The CDMA auction will start two days after the GSM auction concludes.
The government had earlier set the reserve price of CDMA airwaves at Rs.18,200 crore for 5MHz across the 22 circles or telecom service areas in the country. This was 1.3 times more than the price of GSM spectrum, offered at Rs.14,000 crore for 5MHz across the country. The GSM auction raised only one-third of the minimum estimated Rs.30,000 crore.