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EGoM recommends cut in CDMA base price

Recommended cut of 30% or 50% may dent govt’s earnings, but unlikely to elicit desired response from bidders
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First Published: Mon, Jan 07 2013. 01 19 PM IST
Communications minister Kapil Sibal says the government will auction 15MHz of 1,800MHz spectrum in Delhi and Mumbai. Photo: Pradeep Gaur/Mint
Communications minister Kapil Sibal says the government will auction 15MHz of 1,800MHz spectrum in Delhi and Mumbai. Photo: Pradeep Gaur/Mint
Updated: Tue, Jan 08 2013. 12 05 AM IST
New Delhi: The empowered group of ministers (eGoM) has recommended a cut in the reserve price for spectrum in the 800 megahertz (MHz) band by either 30% or 50%, which is likely to dent the government’s earnings from the sale of telecom airwaves and at the same time is unlikely to elicit the desired response from prospective bidders. The spectrum is optimized for CDMA services.
Communications minister Kapil Sibal said the spectrum auctions will begin in March and will also include the 1800MHz band spectrum that remained unsold after the failed November 2012 auction.
The cabinet will take a final call on the reserve price of the spectrum. In November, the 1800MHz band of spectrum auction saw the government raise only one-third, or Rs.9,407 crore, of the Rs.30,000 crore it expected, with much of the spectrum remaining unsold because of the high reserve price.
The lower revenue will further put pressure on the government, which is struggling to meet its revised fiscal deficit projections of 5.3% of gross domestic product as revenues—both tax and non-tax—are well short of target.
On the tax side, there is a marked slowdown in the corporate tax mop-up as well as customs and excise duty collections. On the disinvestment front, it has managed to so far mobilize only about Rs.7,000 crore of the budgeted Rs.30,000 crore. Economists expect fiscal deficit to be around 5.6% in the current fiscal.
Given the shortfall in revenue, the department of telecommunications (DoT) is not delaying moves aimed at raising revenue. DoT is likely to send demand notices for the one-time fee to be charged for additional spectrum above 6.2MHz held by incumbent operators. According to senior DoT officials, the operators will be allowed to pay in annual equated instalments for the remaining period of their licences, at an interest rate of 9.75% per year.
As reported by Mint on 8 November, the cabinet decided that the incumbent operators would have to pay for spectrum above 6.2MHz for the period between 1 July 2008 and 31 December 2012. They will additionally have to pay for spectrum they hold above 4.4MHz for the period starting 1 January 2013 until the expiry of their licences. The operators have the option of surrendering the spectrum if they do not wish to pay.
According to this calculation, Bharti Airtel Ltd has to pay Rs.4,100 crore, Vodafone India Ltd Rs.2,900 crore and Idea Cellular Ltd Rs.2,100 crore. The payment is based on the price discovered for the spectrum by auction. If an auction hasn’t taken place for a certain band of spectrum, the operators have to pay the reserve price, which will then be adjusted once it takes place, as is the case for the frequencies held in the 900MHz band by the operators.
The eGoM has also decided that the reserve price for the 900MHz band spectrum auction will be twice that of the price discovered in the 1800MHz auction.
The 800MHz band of spectrum was earlier put on sale in November, but had to be postponed as Tata Teleservices Ltd and Videocon Telecommunications Ltd withdrew their applications from the auction, citing the high reserve price. The pan-India price for the minimum 5MHz spectrum needed to start new services in the 1800MHz band was set at Rs.14,000 crore. The reserve price for spectrum in the 800MHz band was set at 1.3 times the 1800MHz band reserve price, or approximately Rs.18,100 crore for 5MHz.
The government has already decided to cut by 30% the reserve price for 1800MHz band spectrum in circles that did not get even one bid. These circles include Delhi, Mumbai, Karnataka and Rajasthan.
The eGoM, headed by finance minister P. Chidambaram, also decided that at least 15MHz of 1800MHz spectrum will be available in Delhi and Mumbai, and an additional 12.5MHz in Kolkata for auction, Sibal said.
The cut in price for the 800MHz spectrum, also referred to as CDMA spectrum, is seen as most beneficial for Sistema Shyam TeleServices Ltd (SSTL). Its licences were among those scrapped in a 2 February 2012 Supreme Court verdict. SSTL had filed a curative petition before the apex court seeking reinstatement of its licences. The court is expected to hear the petition on 10 January.
SSTL is also considering invoking a clause of the bilateral trade agreement between India and Russia, where India may have to refund the telco for lost investments.
“It is unlikely that anyone else will participate in this auction as the spectrum is still optimized for CDMA services,” said a Mumbai-based telecom analyst at a multinational brokerage firm on condition of anonymity as he’s not authorized to speak to the media. “Tata Teleservices might bid for the three circles they lost due to the Supreme Court verdict.”
Tata Teleservices has said it will stop CDMA operations in Jammu and Kashmir, the North-East and Assam circles after losing licences in the Supreme Court ruling.
The apex court cancelled 122 licences allocated to nine companies in January 2008 and ruled that the allocation process at the time was flawed. The court also directed the government that all spectrum would henceforth have to be awarded through auction.
The affected operators have until 18 January to cease services in circles where they don’t get spectrum.
The other firms that had their licences scrapped by the court ruling were Uninor (a joint venture between Telenor ASA and Unitech Ltd), Etisalat DB and S Tel Pvt. Ltd among others.
Uninor is now Telewings Communications Pvt. Ltd following the exit of Unitech and the entry of Sun Pharmaceutical Industries Ltd’s Sudhir Valia. It got spectrum in six circles in the November auction, after bidding some Rs.4,000 crore. The company is expected to bid heavily for 1800MHz spectrum in the Mumbai, Kokata and West Bengal circles after the 30% discount.
The telcos have to win spectrum in the auctions to continue to offer services.
If the cabinet agrees to the cut in reserve price for 800MHz spectrum, this could come down to Rs.9,000 crore for 5MHz of spectrum. A CDMA operator needs a minimum of 2.5MHz, costing Rs.4,500 crore, for spectrum across the country.
The winning bidders can pay in instalments after an upfront payment of 25%, or at least Rs.1,125 crore. The operators who have lost licences due to the Supreme Court verdict will also be allowed to adjust the entry fee paid in 2008 against the final amount payable. This would mean that SSTL could end up not having to pay anything for the first year of the 20 years it will get the spectrum, and less than Rs.200 crore for the remaining 19 years. SSTL declined to comment for the story.
GSM operators have asked the government to look into re-optimizing the spectrum so as to enable it to be used for extended GSM services, but the Centre has still not taken a final call on this.
Remya Nair contributed to this story.
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First Published: Mon, Jan 07 2013. 01 19 PM IST
More Topics: eGoM | spectrum | CDMA | cabinet | auction |