EGoM cuts 2G reserve price in 4 key circles

Following a muted response in the 2G auction held last month, the empowered group of ministers (EGoM) on Friday decided to fix the reserve price for four key circles which did not receive bids last month at 30% lower for the next auction in the 1800 MHz band.

The much-hyped auction last month, which lasted for two days, turned out to be flop with the government receiving bids worth Rs9,047 crore against the expected target of minimum Rs28,000 crore. Key circles — Delhi, Mumbai, Karnataka and Rajasthan — did not receive any bids at all on account of high reserve price.

The government had fixed a reserve price of Rs14,000 crore per 5MHz of spectrum.
Circle-wise, while the price for per block in Delhi was over Rs693 crore, the same for Mumbai, Karnataka and Rajasthan was fixed at Rs678.45 crore, Rs330.12 crore and Rs67.08 crore, respectively.

However, telecom experts believe that even a 30% reduction in reserve price does not present a viable business case for new players — certainly not a good one for incumbents who already have spectrum in all these circles.

Sandeep Gupta, managing director of Protiviti Consulting, said, “Due to saturation in the metros, and a very high price, Rajasthan and Karnataka are likely to see more interest, but only from the top three incumbents — Airtel, Vodafone and Idea. A viable business case could only be provided by clubbing the 1800, 800 and 900 MHz spectrum, which is why even incumbents may prefer to wait for spectrum refarming than bid for 1800 MHz spectrum again.”

Jaideep Ghosh, partner with KPMG, concurred. “Policy should be made looking at long-term impact and not short term gains, just to sell leftover spectrum. It is unlikely that even at this reduced price, players like MTS or RIL — or any new player may bid.”

“The EGoM has decided to reduce the reserve price by 30% in the four circles in 1800 MHz band, where the spectrum remained unsold,” a senior telecom department executive said.
It is now left to the Cabinet to take a final call.

The EGoM has also decided to auction spectrum in the 900 MHz band in Delhi, Mumbai and Kolkata.

After the meeting, telecom minister Kapil Sibal told reporters, “The EGoM met today and we have decided to auction the 1800 MHz band in four circles — Delhi, Mumbai, Karnataka and Rajasthan – and 900 MHz band in Mumbai, Kolkata and Delhi. Auction will be finished this fiscal.”
“We will be taking cabinet approval for the same,” he added.

However, he said no decision on 800 MHz  has been taken as of now.

This is first time the EGoM met after the 2G auction took place in November.
The telecom operators  partially welcomed the reduction of reserve price. “We welcome this, it is going in the right direction,” said Rajan Mathews, director general, Cellular Operators Association of India.

Analysts differed, saying that even a 30% reduction may not lure the majority of firms.
“As evidenced in the earlier auction, there were no new takers, so there are still the old takers whose licences have been cancelled or who require additional spectrum to support the growing subscriber base,” said Hemant Joshi, partner, Deloitte Haskins & Sells. “But because the reserve price was too high, even a 30% reduction in these circles is unlikely to motivate the incumbents to bid for these circles aggressively.”

“However, there might be some slots, if any, taken by incumbents as they might be in need of additional spectrum to decongest their networks,” said Joshi.

According to analysts, by reducing the prices in the four circles (Delhi, Mumbai, Karnataka and Rajasthan), the government has finally conceded that market price could not be discovered in the November auctions.

Also, the fact that most of the spectrum won is at reserve price only proves that operators have taken spectrum not because the price was reasonable, but because they had compulsion to obtain the spectrum to continue their services in those areas.