2G price cut but players still wary

The cabinet on Thursday approved the recommendation of the Empowered Group of Ministers (EGoM) to reduce the reserve price for unsold 1800 MHz spectrum by 30% for the next auction.
Following a muted response in the 2G auction held last month, the EGoM had last week recommended a reduced reserve price for the four key circles – Delhi, Mumbai, Karnataka and Rajasthan – which did not receive bids last month on account of high reserve price.

The government, which had fixed a reserve price of Rs 14,000 crore per 5 MHz spectrum, could mop up only Rs 9,047 crore from the auction, against a targeted Rs 28,000 crore.

But telecom experts believe the reserve price remains high, even with a 30% reduction. “Its very unlikely that there will be high participation even at this price also. Though the circles on offer are very valuable, the price is disproportionate to the potential revenue,” said Mahesh Uppal, director, ComFirst India.

Mohammed Chowdhury, telecom leader, PwC, concurred. “The 30% reduction is insufficient because it does not reflect the current value of the spectrum in these circles.”

“The policy seems to be reactionary to the current market scenario, and does not imply a firm and stable policy,” said Jaideep Ghosh, partner telecom, KPMG.

“The 30% reduction is insufficient,” said Hemant Joshi, partner, Deloitte Haskins & Sells.
The cabinet has also approved the EGoM’s recommendation to auction 900 MHz band spectrum at twice the reserve price as that for the 1800 MHz band.

“We think it does not make business sense to bid for 900 MHz spectrum at double the price of 1800 MHz, even if it is more efficient, as there is not much difference between both bands in the metros,” said Rajan Matthews, director general of the Cellular Operators’ Association of India.

No decision was taken on the 800 MHz band. The government plans to complete the auction process this fiscal.