Business | Telecoms

India Government fixes high base price for auction of scarce 2G spectrum

Mobile phone firms plan to drag the government to court over recent policy decisions

  • By Naushad K. Cherrayil, Staff Reporter
  • Published: 17:58 August 7, 2012
  • Gulf News

Dubai: Mobile call rates in India are expected to increase between 30 and 80 paise per minute due to a disappointing decision by the Cabinet to fix a high base price for auction of scarce 2G spectrum at Rs140 billion.

The decision will prove to be “regressive” for the sector’s growth and that it would force operators to hike tariffs, said GSM operators body Cellular Operators Association of India (COAI).

The Cabinet took the decision to fix the reserve price at Rs140 billion for 5MHz of airwaves. The sector watchdog Telecom Regulatory Authority of India (TRAI) had recommended around Rs182 billion for the spectrum auction.

The telecom spectrum auction could fetch the government at least Rs416.50 billion.

The reserve price fixed would be a disappointment for the telecom industry, with more than 900 million mobile subscribers, which had been pitching for a 80 per cent cut in the reserve price suggested by TRAI.

The new prices approved by Cabinet are up to 23 per cent lower than reserve price for pan-India spectrum (in 1800 Mhz band) suggested by TRAI for the auction.

According to S.C. Khanna, secretary general of the Association of Unified Service Providers if India, tariffs are expected to go up between 30 and 80 paise per minute because of the high reserve price.

Following the 2G spectrum scam, the Supreme Court in February had cancelled 122 telecom licences awarded in 2008 to eight service providers including all permits of Uninor, Loop Telecom, Etisalat DB, Videocon, STel, 21 licences of Sistema Shyam, 9 of Idea Cellular and 3 licences of Tata Teleservices on grounds that these were arbitrarily granted and asked the government to conduct fresh auctions by August 31.

But this deadline may not be met and the government may approach the Apex Court for extension of the timeline.

Mobile phone companies plan to drag the government to court over recent policy decisions related to the auctions, possibly delaying the sale process and adding to the uncertainty prevailing in this litigation-prone sector.

KPMG Executive Director Jaideep Ghosh said the pricing is on the higher side and that tariffs for consumers, which have gone up recently, would continue to rise.

Telecom companies bidding for airwaves frequencies in 800 Mhz band that are currently used for CDMA services, will have pay minimum of Rs182 billion for pan-India spectrum.

The 1800 Mhz spectrum band is currently being used to provide GSM technology-based mobile services and frequencies in 800 Mhz band are being used for CDMA services.

However, the spectrum which will be purchased through auction be liberalised which means companies will be free to use any technology for any kind of services like 2G, 3G or 4G.

“The policy is likely to create unnecessary barriers for new entrants aiming to bid for startup spectrum, hence hampering competition,” said Ernst & Young Global Partner member Prashant Singhal.

The auction is crucial for companies like Uninor and Sistema Shyam Teleservices, who have time till September 7 to offer their services and after which will be forced to close down their operations in case they fail to get a licence.

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