The Union Cabinet will take the final decision, and the government hopes to wrap up the auction by March.
The Empowered Group of Ministers, or EGoM, on telecom, headed by Finance Minister P Chidambaram, has said the base price for CDMA spectrum auction should be cut 30 per cent or 50 per cent, as the last auction in November failed to attract any bidders.
At that time, pan-India 5 MHz spectrum was priced at Rs 18,000 crore (Rs 180 billion).
The Union Cabinet will take the final decision, and the government hopes to wrap up the auction by March.
This comes weeks after the government decided to reduce the base price for GSM spectrum in the four telecom circles of Delhi, Mumbai, Karnataka and Rajasthan by 30 per cent since these too had remained unsold in November.
The government has pragmatically decided the earlier reserve price for spectrum was too high, and is willing to take decisions in spite of the intense public scrutiny -- even though under-pricing of spectrum was at the heart of the 2G scam.
That the government is prepared to steeply reduce the price of spectrum suggests it is also willing to recognise the current state of the telecom business and the need to revive the sagging economy.
The March auction, it is expected, will fetch the government close to Rs 20,000 crore (Rs 200 billion).
Though this is half of the Budget estimate of Rs 40,000 crore (Rs 400 billion) for the year, it will be a vast improvement over the Rs 1,706 crore (Rs 17.06 billion) the government garnered in the November auction.
This projection assumes that Sistema Shyam, which lost its licence and the spectrum that came with it in the Supreme Court verdict of February last year, will buy spectrum in the auction. (Its licences finally expire on January 18.)
The company has filed a curative petition in the Supreme Court seeking restoration of its licences.
If the matter is decided in its favour, Sistema Shyam may well choose to stay away from the auctions.
The government, however, has said the auction is crucial if it wants to achieve its revised fiscal deficit target of 5.3 per cent of the gross domestic product for the year and avoid a ratings downgrade.
This is a myopic approach to the problem.
The ballooning fiscal deficit needs systemic repairs, like reducing the subsidy bill and pruning wasteful expenditure; one-off revenue boosts, like the one caused by spectrum sale, are just a quick fix.
Will cheaper spectrum arrest the sagging fortunes of the CDMA telcos?
It is worth noting that the Association of Unified Telecom Service Providers of India, or Auspi, had told the Telecom Regulatory Authority of India that steeper cuts were required in the spectrum price to stimulate the sector.
It had, thus, demanded that the base price be lowered 75 per cent. In the last auction in November, GSM spectrum was priced lower at Rs 14,000 crore (Rs 140 billion) for 5 MHz (pan-India).
Auspi has argued that CDMA is steadily losing ground to GSM because there aren't too many makers of transmission equipment as well as handsets, which limits the choice for customers and so it 'deserves' spectrum at a lower price.
Instead of lobbying for cheaper spectrum, companies should remember that CDMA is an efficient platform for data, and they need to build a business proposition around that.