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Spectrum getting costlier, will the big fish still bite?

Better balance sheets and an easier industry outlook may tempt large firms to make a go of it

The telecom industry is coming out of a rut, and big companies like Bharti Airtel, Vodafone and Idea Cellular are more confident about the future. Will these big fish bite, though spectrum prices are becoming 25% costlier? After all there was little or no response at the earlier auctions in 2012 and 2013.

The empowered group of ministers (EGoM) on telecom on Friday fixed the January 2014 auction reserve price for 1,800-MHz spectrum 25.8 per cent lower than what the government set for the previous auction in March, which failed to get any bidder.

The base price for one MHz of pan-Indian spectrum in the 1,800-MHz band was fixed at Rs 17.6479 billion for the auction scheduled for January 2014. The March 2013 auction price was Rs 23.79 billion.

The reserve price for the same spectrum was about 37 per cent higher in the November 2012 auction. Following poor response, the government reduced the price by about 30 per cent for March but it still failed to get any bidder.

Communications Minister Kapil Sibal said the EGoM headed by Finance Minister P Chidambaram had accepted the Telecom Commission's recommendation on the base price. The EGoM's decision is final and does not require Cabinet approval.

In June, EGoM had asked the Telecom Regulatory Authority of India (Trai) for its recommendations on the reserve price. Trai had suggested a reserve price of Rs 14.9692 billion for one MHz of 1,800-MHz spectrum.

As regards the 900-MHz band to be auctioned in Delhi, Mumbai and Kolkata, EGoM accepted the Telecom Commission's base price, which was 25 per cent more than that suggested by the regulator. However, it has made one change - it will sell spectrum in blocks of one MHz each instead of 1.25 MHz.

In 900 MHz, the per MHz price for Delhi will be Rs 3.6 billion, Mumbai Rs 3.28 billion and Kolkata Rs 1.25 billion. An operator will have to purchase a minimum of 5MHz.

EGoM has directed the DoT to refer the contentious issue of fixing a base price for spectrum in the 800-MHz band back to the regulator but with a fresh reference. CDMA and dual-technology operators are concerned that the auction of 800 MHz might not happen in January simultaneously with 900 MHz and 1,800 MHz.

The entire process is likely to fetch around Rs 300-400 billion, according to telecom minister Kapil Sibal. One must wait and see if the telcos justify his optimism.

Based on stories in Business Standard and Economic Times

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Indiatel provides detailed, customized reports on India-telecom-related topics, using published, available unpublished or field sources.

Illustrative topics:
# India's mobile telecom services business
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# India's long-distance telecom business
# India's cable TV equipment market and competition
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# India's telecom carrier equipment business

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