Telecom firms pitch for 2G spectrum auction

Top telecom honchos who met Prime Minister Manmohan Singh and finance minister Pranab Mukherjee, besides five other key economic policy makers in the government late on Wednesday, made a strong pitch for auctioning of 2G spectrum.

They rejected an earlier formula suggested by a panel of the Telecom Regulatory Authority of India that had linked it with the price reached at on the basis of 3G spectrum auction.

The move is significant as it comes a day before a meeting of the Telecom Commission, the top decision-making body of the communications ministry, to take a final call on Trai's recommendation on 2G spectrum pricing, on Friday.

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A committee set up by the ministry a couple of months ago to suggest the way forward on spectrum pricing and other issues had recommended going with the Trai view only if an operator needed spectrum 'here-and-now'.

It had backed the idea that an auction should determine the market price of 2G spectrum. The Telecom Commission generally endorses the view taken by such internal committees of the department of telecommunications. 

If accepted, the beleaguered sector could be in for a major relief.

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It would otherwise have had to fork out Rs 70,000 crore (Rs 700 billion) to the exchequer under the Trai-led formula, of linking 2G spectrum prices to 3G auctions for licence renewal and paying for extra spectrum they hold in excess of 6.2 MHz.

Based on the Trai recommendations, the telcos would have to shell out around Rs 14,865 crore (Rs 148.65 billion) for 2G spectrum beyond 6.2 MHz.

Besides these, with licences of 11 companies coming up for renewal from 2014 to 2021, going by the Trai formula, they would have to together pay Rs 56,000 crore (Rs 560 billion) for the spectrum.

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But, since demand for 2G spectrum has been subdued due to the financial constraints in the sector, the thinking among players is that auctions would keep spectrum prices to more reasonable levels, unlike last year's 3G auctions, where they had to collectively cough up Rs 67,000 crore (Rs 670 billion).

In their meetings with Singh, Mukherjee, communications minister Kapil Sibal and commerce minister Anand Sharma, the telecom biggies, including Bharti's Sunil Mittal, Reliance Anil Dhirubhai Ambani Group's Anil Ambani, Aditya Birla Group's Kumar Mangalam Birla, Tata's Ishaat Hussain and Vodafone Plc's Vittorio Colao, suggested 2G spectrum should be auctioned in such a way that there was enough spectrum available during each auction.

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The auctions could be held on a continuous basis (maybe once in two or three years) to ensure transparency in the process.

"The auction price determined through this process should also be the price for all future 2G spectrum deals, including that which we will pay after renewal of our licences, starting 2014. This has been our consistent demand and we told this to all policy makers," said a senior executive of a telecom company who was present at the meeting.

However, the move has been questioned by some competing telecom players, especially new ones, who say that the government will fetch a very low price for the spectrum if auction process is followed because of the value of spectrum falling dramatically as a result of the financial crises faced by many of the new operators.

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And, it will be far lower than the Trai formula which will lead to a loss of revenue for the government.

They argue that this is reflected in the fact that many of the new players are willing to return spectrum to the government.

However, in response to department of telecommunication's request to Trai to reconsider its decision on 2G pricing, the regulator, while sticking to its stand of benchmarking 2G with 3G auction prices, added that its panel's recommendations were only estimated figures and might or might not match the exact market price.

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Therefore, once the price of the spectrum was available through auction, it would be the current price and the price estimated by experts (the Trai panel) will no longer be relevant.

The incumbent operators say that the logic of pricing 2G spectrum at a rate higher than 3G does not make sense, considering that 2G is less efficient.

They also argue that the auction price of 3G spectrum went too high because of limited spectrum available for auctioning.

Currently, on an average, about 64 MHz of 2G spectrum has been assigned to each player per circle and there is about 10 MHz of unassigned spectrum already available with DoT.

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The department is also talking to other stakeholders like defence services to release 20 MHz of spectrum that could be made available to operators.

Trai, in its recommendations on the views of the expert panel, had suggested that the value of 2G spectrum up to 6.2 MHz should be fixed at 53 per cent of the 3G auction price.

However, it had contended that the efficiency of 2G spectrum beyond 6.2 MHz was higher than the start-up spectrum given to 3G operators.

Therefore, the panel had valued spectrum beyond 6.2 MHz at 137 per cent of the 3G auction price.