It is unlikely that the August 31 deadline as set by the Supreme Court for auction of 2G spectrum will be met as the Government is yet to finalise the reserve price or the initial price for starting auction.
Also the auctioneer, the most crucial component (an independent party that will conduct the auction of the scarce natural resource) has not been finalised as yet. The auctioneer is mandated to execute the bidding process in a fair and transparent manner.
An Empowered Group of Ministers (EGoM) headed by Home Minister P Chidambaram had last week recommended a reserve price in the range of Rs 14,000 crore to Rs 18,000 crore for auction of 2G spectrum.
This is lower than the base price of Rs 3,622 crore per MHz or about Rs 18,000 crore for 5 Mhz of spectrum that Telecom Regulatory Authority of India (TRAI) had recommended following the Supreme Court cancelling 122 licences issued by the then telecom minister A Raja in 2008 on a first-come first-serve basis.
In another crucial recommendation, the EGoM also agreed to allow telecom companies to stagger payments for spectrum. This is being seen as a major relief for telecom operators as it will not add to the burden of their stretched balance sheets even if the final base price for 2G spectrum is not significantly lower than what TRAI suggested. More importantly, it would save them from paying for spectrum in one go.
In its last meeting, the EGoM had asked the Department of Telecom to prepare a matrix of reserve price in the range of Rs 12,000 crore to Rs 18,000 crore and calculate its impact analysis in the sector on the basis of spectrum usage charge in the range of 3% to 8%.
The industry, however, has raised concerns over the desired model. “By changing the payment model to lower upfront charges, higher revenue share...will not address the fundamental issue that the price is unsustainable and will significantly increase cost and thus invariably tariffs,” Cellular Operators Association of India Director General Rajan S Mathews recently wrote in a letter to Chidambaram.
The high reserve price has also been criticised by the industry that claims the move would lead to tariff hikes by up to 100% in certain circles. This auction is important for companies like Sistema Shyam Teleservices, Uninor and Videocon as they have expressed interest in continuing businesses by participating in the auction mandated by the apex court.
With the deadline for spectrum auction unlikely to be met on August 31, sources claim the government will seek permission from the SC soon for fresh auction dates.