Reserve price for 2G auction may be slashed by up to 62%

The Telecom Regulatory Authority of India on Monday proposed to cut the base price for the next auction of GSM spectrum by up to 62 per cent, in reaction to the poor response from telecom companies in the last two spectrum auctions.

The proposed price cuts could see a positive response to the auction, due soon, from carriers such as Bharti Airtel and Vodafone local business. Telecom stocks such as Bharti Airtel and Idea Cellular rallied over 4 per cent each on Tuesday morning after the news.

The companies did not immediately comment.

The regulator has suggested cutting the base price for bandwidth in the sought-after 900 MHz band, which is considered most efficient as it saves capital expenditure.

Adopting renewed regression formulae for spectrum valuations TRAI's new reserve prices value pan-India 1800 mhz spectrum 37 per cent below the March auction's reserve price of Rs1,496 crore.

The 900mhz spectrum is valued for only Mumbai, Delhi Kolkata, which are up for renewal next year, with a steep drop of 62 per cent from March prices to Rs650 crore.

The government has switched to auctioning spectrum instead of awarding the licences on a first come, first served basis, after a scandal over license and spectrum allocations came to light in late 2010.

But most carriers stayed away from an auction last November and another in March this year because the reserve or minimum prices were too high. The government asked the sector regulator in July to recommend new prices.

A successful auction would help to improve the government's strained finances and meet its budgeted fiscal deficit target of 4.8 per cent of GDP in the fiscal year to end-March. The proposals need cabinet approval.

When asked if the previous minimum prices were too high, Rahul Khullar, chairman of TRAI, said: "Short answer: 'yes'. The approach has completely changed from the previous pricing regime."

The regulator has also recommended scrapping an earlier policy whereby companies could automatically retain part of their existing spectrum in the 900 band, provided they paid a price determined by an auction for the airwaves.

Under the new proposals, companies such as Bharti and Vodafone would have to bid again for all the spectrum that they currently hold in the 900 band.

The regulator has also recommended that carriers should be allowed to trade spectrum they buy through auctions, including the third-generation (3G) spectrum they bought in a 2010 sale.

The regulator also recommended that the annual spectrum usage charge be set at a flat 3 per cent of companies' revenues for the spectrum they buy from auctions. That would be a departure from the current practice where carriers pay 3-8 per cent, depending on their spectrum holding.