Reserve price, who gets to bid key issues

The telecom regulator is not wasting time.

A day after the Supreme Court passed a landmark judgement cancelling 122 telecom licences issued in 2008, the Telecom Regulatory Authority of India (TRAI), which will conduct 2G spectrum auctions for these licences, has sought comments from stakeholders on the procedure by February 15.

In an earlier consultation paper in May 2010, TRAI had recommended that spectrum be de-linked from licences going forward, and the paper also called for a unified licensing regime.

While this practice will be followed, the dilemma arises over the reserve price at the auction, which, according to the Department of Telecom (DoT) guidelines, needs to be fixed in line with the immediately preceding auction.

That would mean the 3G base price, which would be too expensive for 2G spectrum.

“If the base price is too high, it will be commercially unviable for operators to bid, and if it is too low, then the government can again be accused of gifting away spectrum,” said Ashish Basil, partner with a member firm of Ernst & Young.

Mahesh Uppal, director, Com First (India), a company that specialises in telecom regulatory affairs, said, “I would imagine that it would be better to fix the reserve price based on previous auctions. While fixing a high rate would be a problem as it would raise the risk of fewer bidders, a low price would ensure that every player is allowed to participate, without any risk to the exchequer.”

The other issue that arises is the previous 2G auctions which were to take place for allocating spectrum beyond the 6.2 MHz band for GSM operators.

Satya Gupta, founder president of Association of Competitive Telecom Operators, said there is already additional spectrum to be auctioned, so now the government may combine the excess 2G spectrum with the current 536 Mhz of spectrum which has come up for grabs.

“While this will provide more spectrum for established operators, they may be stalled by the circle-wise agreement disallowing over 10% stake in any telecom circle,” Gupta said.

What will also be interesting to note is which players are allowed to bid, whether it will be a general auction, and the fate of the tainted operators.

All of this will be decided after stakeholders give their comments to TRAI’s pre-consultation paper on the 2G auctions.