Airtel, Vodafone to gain from TRAI's decisin to slash spectrum base price by up to 81%

Existing telecom majors like Airtel and Vodafone are expected to reap a bonanza with the Telecom Regulatory Authority of India recommending a sharp reduction in the base price of radio spectrum for the third round of auction.

Stung by lax industry response to the two previous auctions conducted  on the directive of the Supreme Court, the telecom regulator on Monday recommended an average 50 to 60 per cent reduction in the reserve prices for various spectrum bands in the next round of spectrum auctions.

The regulator 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.

Although TRAI said no spectrum would be reserved for existing players, the government has to auction the premium 900 MHz band being held Airtel, Vodafone and Loop in some circles at lower prices as their licences expire in the second half of 2014.

While the regulator said existing licensees will get no priority for grant of spectrum, the regulator suggests that spectrum be made tradable so that they can buy it, although at a premium. This opens a trading window for precious spectrum, allowing licensees to profit on state property.

TRAI has suggested that the DoT charge a 1 per cent transfer fee on the transactional amount or the prescribed market price of spectrum, whichever is higher should be imposed on all spectrum trade transactions.

Once the government accepts TRAI's recommendations on spectrum trading, the regulator proposes to constitute a steering committee consisting of service providers and industry associations to work out the details of the implementation issues.

The reduction in prices is the sharpest for the 900 MHz band spectrum in the Mumbai circle, where the recommended price is Rs262 per MHz compared with the earlier recommend Rs1,404.28 crore per MHz of spectrum.

The combined auction reserve price for the 900 MHz band spectrum for the Delhi, Mumbai and Kolkata circles is down nearly 79 per cent at Rs650 crore per MHz against the earlier price of Rs3,074.18 crore per MHz.

For new players, the regulator has prescribed a base price of Rs1,496 per MHz of spectrum in the 1800 Mhz band in a minimum lot of 5 MHz, ie, Rs7,480 crore per 5 MHZ against the earlier recommended Rs18,200 crore a reduction of nearly 59 per cent.

The government is required to auction the entire 2G spectrum freed from the cancellation of 122 licences in February 2012 by the Supreme Court order.

The regulator has suggested a lower reserve price even in service areas where spectrum was sold in November 2012.

TRAI has not recommended auction for CDMA spectrum.

Before the upcoming auction, the DoT should also come out with a clear roadmap indicating the quantum of spectrum which will be available in future along with time-lines so that licensees whose licences are due for renewal in 2015-16 can take an informed decision about bidding for spectrum in the 1800 MHz band.

Eligibility conditions prescribed in the recently held auctions (November 2012 and March 2013) should be retained for the upcoming auction.

The recommended reserve prices for 1800 MHz spectrum for 22 LSAs are: