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The Telecom Commission made recommendations on a slew of pending issues, paving the way for the upcoming 2G spectrum auction. A successful spectrum auction is of high priority for the Union Government, as the last two attempts made in November 2012 and March 2013 failed miserably.
Telecom Commission, which is the highest decision making agency of the Department of Telecommunications (DoT), has proposed a price hike in the base price or reserve price recommended by Telecom Regulatory Authority of India (TRAI) for the upcoming auctions, which are proposed to be held in January 2014. The Commission has increased the base price rates by 18 per cent for pan-India 1,800 MHz spectrum bands and by 25 per cent for the 900 MHz bands in Delhi, Mumbai and Kolkata.
Thus, the new base price per MHz in 1,800 band will be Rs 218.90 crore for Delhi, Rs 206.74 crore for Mumbai and Rs 73.13 crore for Kolkata. Similarly, for 900 MHz band, the base price will be Rs 359.65 crore for Delhi, Rs 327.50 crore for Mumbai and Rs 125.27 crore for Kolkata.
The Telecom Commission has decided that, along with the three metros, the price for the 1,800 MHz band will be applicable for five ‘category A’ circles - Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. The Commission, however, approved the base price set by TRAI for the remaining 14 ‘category B’ and ‘category C’ circles.
These prices are, however, set for revision before the auctions as the Telecom Commission’s recommendations will now be forwarded to the empowered group of ministers, and then to the cabinet for final approval.
Still, as anticipated, GSM operators have slammed the Telecom Commission's recommendations for raising the base price of spectrum. As in the case of 900 MHz band, licenses of operators like Bharti Airtel, Vodafone India and Idea Cellular are set to expire in 2014. Thus, a higher base price will mean these companies will have to pay more for retaining their spectrum.
The fact that there will be no reservation and priority for the incumbent players in the 900 MHz band is another setback for operators.
However, even with the price hike, the Telecom Commission expects good participation from operators in the auction as the prices are still lower than the previous auction prices.
On the other hand, Mobile companies using the CDMA technology are relieved with the Telecom Commission’s decision on auctioning the 800 MHz band. The decision has been welcomed by players including Sistema Shyam, Reliance Communications and Tata Teleservices, which have been pushing for new auctions in the CDMA band as it could facilitate their expansion plans in India.
TRAI had strongly recommended that the 800 MHz CDMA spectrum should not be auctioned and that instead the extended GSM (E-GSM) services should be explored in this band. However, the Telecom Commission dismissed this recommendation, as auctioning the E-GSM band would depend entirely on the Defence Ministry vacating these airwaves. This could result in further delays and would deprive the exchequer of revenues from CDMA spectrum sales.
TRAI will now have to recommend a reserve price for the CDMA spectrum within 15 days.
Mergers & Acquisitions Policy Approved
The Telecom Commission has also approved the much awaited Mergers & Acquisitions (M&A) policy. The policy allows merged entities to have a combined market share of upto 50 per cent, which would replace the current cap of 35 per cent. Companies will be allowed to retain two blocks of 3G spectrum in the respective areas after the merger.
The new policy also allows foreign operators to enter the Indian market and will also allow some of them to make an exit. The policy now awaits the Union Cabinet’s approval.
Telecom Commission has also said that TRAI’s recommendations to have a uniform spectrum usage charges (SUC) cannot be adopted now as the matter needs refinement. The Commission has decided to study the implications in consultation with the Ministry of Finance and intends to finalise the matter before the upcoming auction. TRAI had proposed to fix a flat fee of three per cent of operators’ annual revenue for using spectrum.
All these measures are being taken for clearing two important objectives, which are, maximising revenues for the government, and helping out the industry which is struggling with falling profits.
For the Central Government, the auctions will be a source of major non-tax revenue in FY14 to maintain its fiscal deficit target of 4.8 per cent of GDP. As per the Union Budget 2013-14, the government has fixed a revenue target of Rs 40,847 crore in FY14 from spectrum auction and other fees from telecom companies. The government can make upto Rs 29,500 crore from the coming auction, assuming that the new base price will also be the valuation price and all the spectrum on offer was up for sale. Based on the new price, the 900 MHz spectrum alone will fetch Rs 11,873 crore.
India is the second largest telecom market in the world by subscribers but most players are starved for spectrum. Even though the new M&A policy will result in some consolidation in the Telecom industry, a successful auction is of even more importance to the current operators. A lot is riding on the upcoming auctions, provided there is a healthy participation and is carried out in a transparent way.
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