COAI disappointed over EGoM decision to raise spectrum base price

According to the COAI, the move will increase the already heavy debt burden and financial condition of incumbent players, and ultimately, high spectrum costs will translate into higher tariffs for consumers.

Published Date
25 - Nov - 2013
| Last Updated
25 - Nov - 2013
 
COAI disappointed over EGoM decision to raise spectrum base price

The GSM industry body, Cellular Operators Association of India (COAI), has expressed disappointment over the Telecom Commission and EGOM decision to increase the reserve price for 1800 MHz and 900 MHz spectrum above those recommended by TRAI. The body urges the government to set 'realistic' reserve prices in line with TRAI’s recommendations, however adds it is optimistic that the Cabinet will accept TRAI’s recommendations to foster 'growth and sustainability' of the Indian telecom sector.

“The proposal to increase the reserve price of spectrum appears to be a solution seeking for a problem. At this juncture, there is a need to take a step back and evaluate as to why the EGoM (Empowered Group of Ministers) referred the whole matter of Spectrum Pricing for Auctions to the TRAI in the first place. It was the failure of the spectrum auctions during November 2012 and March 2013 to garner the requisite revenue as envisaged by the Government. The key reason for the failure was the artificially high reserve prices that bore no congruence to market realities. Thus, the objective of the referral of the subject matter to TRAI was to determine a reasonable reserve price for the spectrum,” said the COAI in a detailed release.

Lauding the telecom regulatory TRAI for adopting a 'robust and transparent methodology' for price evaluation, the COAI points out that the TRAI's proposals were “based on average valuations derived from these approaches, determined the reserve prices for spectrum. TRAI proposed reducing the price of 1800 MHz by up to 37% percent lower than the previous auctions, tagging the base price for a pan-India 1800MHz band spectrum at INR 1496 crores per MHz. TRAI's price suggestions in the 900 MHz band were 60% lower than in the previous auctions. While COAI feels that the prices could have been lower in consonance with the PwC study commissioned last year by COAI, overall, the TRAI recommendations came forth as the right step forward for the sector.”

“However, the DoT/TC and EGoM have now proposed to increase the pan-India reserve price for 1,800 MHz spectrum from INR 1496 crores to INR 1764 led by a 25% increase in the reserve price for 8 metros and category ‘A’ circles and no change in the reserve price for balance 14 circles as per TRAI recommendations. In case of 900MHz spectrum, the reserve price for Delhi, Mumbai and Kolkata circles were proposed to be increased by 25% over the TRAI recommended prices.”

According to the COAI, by raising the reserve price, the government runs the risk of dampening the demand for the spectrum and may discourage new telcos from participating in the market.

“Additionally, there is a huge loss that is being caused to the exchequer for each day of delay in auctioning the spectrum. Till date, the exchequer has lost about INR 21,500 crores by the delay that is being caused in auctioning of 1800 MHz spectrum. Hence, COAI believes that the auctions should be conducted at the earliest to prevent further losses and all available spectrum in the 1800 MHz band should be put up for the auctions,” says the COAI.

Last week, an Empowered Group of Ministers on Telecom had decided to go ahead with Telecom Commission's decision to raise spectrum base price by up to 25% higher than recommended by the TRAI.

However, the GSM industry body had previously opposed the Telecom Commission's decision to raise the price, saying: “COAI has maintained from the beginning that any increase in spectrum price will dampen the operators’ enthusiasm for upcoming auctions. Hence the proposed increase of reserve price of the 1800 MHz spectrum by 15% is disappointing for us.”

With COAI strongly opposing the move to raise the spectrum reserve prices, concerns over the success of the forthcoming auctions have emerged. Last year's spectrum auctions had seen a muted response from the industry due to high spectrum prices.

Do you think the government should reduce spectrum prices in order to have more participants on board and have a more competitive auction? Let us know in the comments section below or @1987kulbhushan