Spectrum mortgage for banks cleared; government may miss August auction deadline

In a blow to the telecom industry’s aspirations that the reserve price for 2G spectrum auctions would be significantly lowered, the new Telecom Regulatory Authority of India (TRAI) chairman Rahul Khullar is learnt to have told the Empowered Group of Ministers (EGoM) on spectrum on Thursday through a fresh ‘impact analysis’ that any tariff hike will only be in the range of 5-10 paise per minute and yet leave the industry profitable.

Delhi is the only exception with a probable hike of 15 paise/minute. This would mean that the current reserve price of Rs. 3,622 crore/MHz for pan-India 2G spectrum could balance consumer tariffs with government revenues, to meet the stated policy objective of “common good.”

Sharp contrast

Even TRAI’s new numbers are in sharp contrast to industry projections of a tariff impact of 50 paise-Re 1/minute on account of the TRAI’s original reserve price.

Despite this affirmation that the recommended reserve price did not hurt either the country, consumer or industry, the EGoM, at its first meeting chaired by Mr. Chidambaram, was unable to decide on the two crucial make-or-break issues of reserve price and one-time charge on spectrum to meet the Supreme Court’s August deadline for spectrum auctions. The Hindu had indicated on July 6 that it is highly likely that the auction deadline will need to be shifted yet again, for which the DoT will need to re-approach the Supreme Court.

Even though the new TRAI tariff impact is marginally higher than the 4 paise/minute impact submitted only two months ago, it will make it extremely difficult for the EGoM to now reduce the reserve price by any significant margin.

Spectrum mortgage

The EGoM cleared a related decision on spectrum mortgage to banks which will allow funding for those planning bids in the upcoming 2G auctions. Telecom Minister Kapil Sibal said that in case of default, the banks would be in a position to auction spectrum in close association with the Department of Telecommunications in order to recover their investments. The chairman of Idea, Kumar Mangalam Birla, has already said that TRAI’s recommendations on reserve price, if accepted, will kill the industry. Bharti Airtel’s Sunil Mittal, has echoed the sentiment.

The telecom industry was quick to react. Director General, Cellular Operators Association of India, Rajan Mathews said: “The decision that they took [mortgage] is welcome and yet not on the critical path of spectrum auction timeframe. The critical parameters — reserve price, amount of spectrum, one-time fee — have been deferred, which puts the risk on the industry in overhang.” He felt that rather than simply proceeding with auctions, the government was mixing up too many issues, many of which need careful consideration and time.

In response to the issue of a possible delay in auctions, Secretary General, Association of Unified Telecom Service Providers of India, S.C. Khanna said this is ruining telecom reforms. He further indicated that there may be disagreement within the DoT on what has been put up for the EGoM’s consideration.

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