The empowered group of Ministers or EGoM headed by Home Minister P Chidambaram on Friday set the reserve price for telecom spectrum auction in the range of Rs14,000-Rs 16,000 crore, sources said. The Telecom Regulatory authority of India had recommended a base price of Rs 3,622 crore per Mhz. This translated into Rs 18,000 crore. This means the government has cut the price of the spectrum.
This is the minimum price at which the auction of 2G spectrum takes place. The panel has recommended the base auction price as a percentage of net present value of the spectrum.
The ministerial panel has given the Cabinet two options on spectrum auction pricing and is also in favour of deferring payment for 2G spectrum, sources added. The deferred payment method is in line with the recommendations of the Telecom Regulatory Authority of India (Trai). Essentially, under this process, telecom companies will have to pay a certain amount of money up front for the spectrum, and the rest over a period of time. However, they will also have to pay interest on the deferred portion of the payment.
The EGoM will send two options to the Cabinet. These include a slab rate of 60-65 per cent of the net present value (NPV) of the spectrum. The other option would be a flat rate of 55-65 per cent of value of the spectrum to be auctioned. Those values work out to between Rs14,000 core and Rs 16,000 crore.
However, no decision has been taken on the one-time fee to be paid by current telecom operators; that will be decided in the next meeting of the telecom EGoM.
Following the meeting, Telecom Minsiter Kapil Sibal told NDTV Proft that the EGoM had decided on spectrum usage charges and terms of payment.
Sources said the ministers' panel on telecom has recommended a 3-8% specrtrum usage charge.
The Union Cabinet will take a final decision on the prices of telecom spectrum and one-time fees payable by incumbent telecom operators.
The Cabinet on July 3, 2012, referred to a ministerial panel a proposal to charge mobile phone carriers a one-time fee for their existing second generation, or 2G, airwave holdings, based on a price to be determined by an upcoming auction, a senior government official said at the time.
Analysts expect Bharti Airtel, a pioneer of the Indian wireless telecom industry, to withstand the one-time fee shock better than peers. The company's share price gained over 6 per cent over the past couple of days. However, after the announcement on Friday, shares of Bharti Airtel fell marginally while Ideal Cellular and Reliance Communications gave up gains made ahead of the start of the EGoM.
The government will sell 2G airwaves for the first time through an open auction, due by the end of August, following a Supreme Court order in February this year. Eight carriers which are set to lose some or all of their permits after the court order must bid in the auction to win those back.
The Telecom Ministry has proposed asking all mobile phone operators to pay for their existing airwaves based on the auction-determined price for the remaining validity of their telecoms permits, in what government officials say is aimed at creating a level playing field.
India offers telecoms permits for 20 years.
The Trai had earlier suggested an auction starting price that is nearly 10 times higher than what carriers paid in the 2008 sale, drawing howls of protests from the industry who claimed that such an increase would inflate consumer bills by almost 100 per cent.
The Supreme Court has set an August 31 deadline for the auction process to be completed. But an inter-ministerial committee has indicated that the deadline is likely to be missed, given the present pace of decision-making. The government may have to seek an extension of the deadline from the apex court.
Analysts are perturbed about another issue. Kapil Sibal, telecom minister's recent suggestion that the reserve price for the upcoming spectrum auction would be based on a ‘revenue maximization' motive is a sharp deviation from policy priorities stated in the draft National Telecom Policy or NTP-2011 released in Oct 2011, according to Kotak Securities, a Mumbai firm.
Draft NTP-2011 had clearly referred to ‘direct revenue generation' as a secondary policy objective. Amid all the objection to the TRAI-suggested reserve price in the public domain, we keep hearing unconfirmed stories of operators (including incumbents) preparing for bidding in the upcoming auctions at those very reserve price levels.
“The outcome could be ‘customers losing some, shareholders a lot' if the TRAI suggested reserve prices end up becoming base spectrum price levels,” the brokerage added.
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