The Telecom Regulatory Authority of India on Monday announced a huge bonanza for mobile operators with a 50-60 per cent reduction in the reserve price for various spectrum bands. The regulator has also proposed to introduce a flat spectrum usage charge of 3 per cent of the annual revenue instead of the existing staggered payment system where operators with more spectrum have to pay a higher revenue share.

The TRAI has brought down the reserve price for the 1800 Mhz spectrum band to Rs 1,496 crore per Mhz pan-India. In November, spectrum in this band was sold at Rs 3,900 crore for each 1.25 Mhz pan India. In March, the reserve price for four circles, including Delhi and Mumbai, was brought down by 30 per cent but it found no takers. Therefore, TRAI has decided to bring down the price further. Delhi, for example, was priced at Rs 485 crore for each 1.25 Mhz slot and now the TRAI has proposed to sell this at Rs 175 crore for 1Mhz slot.

But the biggest impact will be due to the reduction in the 900 Mhz band. In March, spectrum in this band was priced at Rs 970 crore for every 1.75 Mhz in Delhi and Rs 949 crore for the same amount of spectrum in Mumbai. Now the regulator has proposed to fix the base price at Rs 288 crore for 1MHz spectrum in Delhi and Rs 262 crore in Mumbai. This will benefit incumbent players such as Airtel and Vodafone, who currently own this spectrum. The incumbent operators’ licences expire in 2014 after which they will have to buy back spectrum through an auction. A higher reserve price would have made the acquisition very expensive.

Explaining the rationale for the revised price, the TRAI said, "The Authority is of the view that the failure to sell spectrum in many circles in the last auctions of November 2012 and March 2013 has been a setback for both the Government and the industry as the value embodied in the unsold spectrum has not been realised. The primary task is, therefore, to ensure that spectrum is sold in the forthcoming auction and the impasse does not continue."

Hemant Joshi, Partner, Deloitte Haskins & Sells said the clarity on policies on one time spectrum price, renewal of licenses, quantum of spectrum (in order to avoid creating artificial scarcity) and merger & Acquisition guidelines would go long way in the bringing back the investor confidence in the sector.

However, TRAI has not proposed any future roadmap for CDMA players, including Sistema Shyam and Reliance Communications. The TRAI has not specified any fresh base price for the CDMA spectrum. It is also not clear if the reduced price will be made available to operators who bought spectrum in the auctions held in November and March.

Mr. Arvind Bali – Director & CEO, Videocon Telecommunications Limited said, “We feel that the recommendations recognises and reconfirms the fact that the reserve price fixed for the Nov 2012 auction was wrong and those who bid for spectrum in the said auction have paid prices which are exorbitantly high and would not support their business case. It may be recalled that Videocon Mobile Services was compelled to bid at this exorbitant price during the Nov 2012 auction to ensure continuity of business since more than $ 2 billion was already sunk into the business.”

“Clearly, the recommendations are favorable to the existing players who acquired license prior to 2008, and is penalising the new players like us,” he added. Bali said that the excess money paid by Videocon i.e. difference between the price paid by us and the successful bid price of the upcoming auction should be refunded

The TRAI proposals will now be considered by the Department of Telecom before it is finalised by the Empowered Group of Ministers.

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