Spectrum tab fixed. Now wait for lawsuits

Picture this:
India’s telecom companies owe Rs1.7 lakh crore to banks.
So they wanted an 80% cut in the reserve price for 2G spectrum. They got 23%.

The Cabinet on Friday confirmed a reserve price of Rs14,000 crore to buy 5 mega hertz of pan-India 2G spectrum in the 1800 Mhz band, while for CDMA technology operators, the 800 Mhz spectrum base price would be even more – Rs18,000 crore – or 1.3 times the 1800 Mhz price.

But a decision on price to be paid by incumbents holding spectrum beyond the 6.2 Mhz limit was deferred.

The frozen price is about 7.5 times the price paid in 2008 for spectrum.

While telcos have to pay only a third of the final bid price upfront, they still need to take fresh loans of over Rs3 lakh crore to roll out the cutting-edge business, industry folks estimate.

On their part, telcos will have to cobble big cash, too -- as much as 20-30% of the winning bid price – in bank guarantees.
Banks, which are already trembling after disbursing the aforementioned loans, are chary of taking fresh gargantuan positions to the sector, say sources.

Says HK Vesuna, manager, corporate credit, Central Bank of India: “We don’t wish to burn our fingers with the telecom sector again. We are certainly not inclined to lend to them.”
Ergo, dialling for an auction disaster and a slew of lawsuits by affected entities? Experts say very likely.

“The telecom industry is reeling under tremendous stress due to high debt, banks’ unwillingness to lend and falling revenue,” Hemant Joshi, a telecommunications analyst with Deloitte Haskins & Sells, told Bloomberg. “These can only be cured with a strategic government policy and not by some poorly thought out rebates.”

Says Rajan Matthews, director general of COAI, which represents the GSM lobby: “While we are disappointed, both new and incumbent operators will participate in the auctions, albeit only in select circles. This will mean that the final auction discovered price will not move much beyond the reserve price, as there will also be fewer bidders.”

In a landmark judgement on February 2 this year, the Supreme Court quashed 122 telecom licences for their alleged participation in the 2G spectrum scam.

The court also said that a new auction, to be completed by August 31, would allow tainted operators a chance to win back their spectrum in order to continue their operations in the country. Failing this, they would be forced to wind up operations by September 7.

However, the problem arose with the Telecom Regulatory Authority of India preferring to err on the side of caution and setting a base price at Rs18,000 crore, or roughly twice the 3G auction bidding price.

Later, fearing auction failure, an EGoM headed by now finance minister P Chidambaram, suggested a 25% reduction in original base price to Rs14,000-16,000 crore to the Cabinet.

However, in addition, telecom operators would need to pay spectrum usage charges of 3-6% of their annual revenues.
Telecom operators had also deemed this price too high, especially for new telcos, who would end up paying much more, having not yet completed their roll-out obligations, and asked for a reduction to Rs10,000 crore.

Telenor and Sistema Shyam Telecom, the two international players who were aggressive about winning back their lost spectrum and continuing operations in the country, even threatened to leave the telecom sector, if the base price was not lowered.

However, in a statement today, Telenor said, “From media reports, it appears that the government is taking some positive steps towards these issues. However, until we see these and the full auction rules in the information memorandum, we are unable to come to any new position with regards to the auctions. Meanwhile, we urge the government to do everything it can to conduct the auctions within the August 31 deadline.”

According to the telecom minister today, a meeting is likely to be held on Monday to decide on the auction schedule, while the spectrum auctioneer will decide on the time-frame for the auction.

Other decisions taken today by the Cabinet, included approval of the existing slab-wise system of spectrum usage charges, according to which operators will have to pay only for the amount of spectrum that they actually use.