India's ministers propose lower base price for 2G auction

A committee of senior ministers in India, known as the Empowered Group of Ministers (EGoM), has proposed a lower reserve price for the country’s 2G spectrum ahead of its auction, due to be held later this year.

The reserve price for spectrum had been set by the Telecoms Regulatory Authority of India (TRAI) at Rs36.22bn ($687m) for every MHz of nationwide spectrum in the 1800MHz band This translates to Rs180bn for a pan-India licence. The price is almost ten times the reserve price that was set in 2008 for the initial auction.

The licences issued in the 2008 auction were scrapped by the Supreme Court earlier this year, amid allegations of corruption surrounding the auction process. The telecoms minister at the time, A. Raja, is currently on bail and will stand trial for the part he played in the scandal. The EGoM, which was set up to dilute power from just one minister following the controversy, has now proposed that the reserve price is lowered to between Rs140bn and Rs160bn, following several complaints from industry stakeholders claiming the high prices would have an adverse impact on the sector.

When the initial reserve price was announced by the TRAI, share prices of leading operators fell significantly on fears that the big potential payouts will have major consequences on their profitability.

Accountancy firm PriceWaterhouseCoopers’ independent assessment of India’s auction process estimated that if the reserve was to stay the same, the cost per minute for customers would go up between 29 to 34 paisa, despite the TRAI claiming it would only increase by 4.4 paisa.

Industry body the GSMA said that while the price range recommended by the EGoM could place spectrum at a fairer price than was recommended by the TRAI, it is still high in terms of international best practice and could hinder continued investment in mobile technology in India.

“The Empowered Group of Ministers has taken the advice of India’s business leaders, economists and mobile industry in consideration. However, this price range is still prohibitive and we remain concerned that over the long term it will hamper the delivery of high quality, affordable and innovative mobile services across the country,” said Anne Bouverot, director general of the GSMA.

“Alongside our member operators, we urge the Cabinet to adhere to international best practice when taking a final decision, to bring the greatest benefits to India’s economy, society and its people.”

The EGoM also approved a deferred mode of payment for auction winners, which means operators would have to pay between 25 per cent to 35 per cent of spectrum fee upfront and the rest in instalments over eight years. GSM operators will have to pay 35 per cent of their bid amount up front, while CDMA players need to pay about 25 per cent.

The recommendations have now been put forward to the Cabinet for a final decision ahead of the auction, which was due to be held by August 31, 2012, but is not looking like it will meet that target.

“The consultancy firm to oversee the auction still has not been finalised,” said Anubhuti Belgaonkar, senior analyst for Asia Pacific at Informa Telecoms and Media. “That decision must be reached first and then the base price for the auction must also be defined. So it does not look like the August deadline will be met – the auction will most likely be held by the end of September instead.”