EGoM okays up to 25% hike in base price Spectrum Sales

"The EGoM met today and we took a final decision on the reserve price and the EGoM has accepted the reserve price recommendations of the Telecom Commission," telecom minister Kapil Sibal told reporters after the meeting.
The empowered group of ministers (EGoM) has decided to accept the reserve price for auction of airwaves for the 900 and 1800 Mhz bands suggested by the Telecom Commission.
The Commission had recommended an up to 25 per cent rise in reserve price over the one suggested by the sector regulator. With the approval of the ministerial group, it is quite likely that the government will hold the auctions by January 2014.
With this approval the government has moved closer to clear up a lot of the legacy issues in the telecom sector that had peaked with the Supreme Court order of February 2012 cancelling 122 licences awarded in 2008.
While the auctions for the 900 MHz band has no connection with that order, the companies were asked to pay a massively hiked reserve price for airwaves which drove away investors, domestic and foreign. For voice transmission, the 900 MHz band is the most prized band in India.
The government has decided that telecom companies, whose 20-year leases are over, will have to pay for renewal of their licences at a price which is discovered in the upcoming auction. So the price band set by the ministerial group is significant for the sector.
These auctions will also mean a lot for the government attempting to shore up its fiscal deficit at 4.8 per cent of GDP. It expects to earn at least Rs 11,000 crore non-tax revenue in FY14 from the auctions at the base price approved by the ministerial group.
Analysts, however, said the reserve price is high considering the current revenue stream of the sector. Mohammad Chowdhury, leader (telecom sector) PwC India, said, "The reserve price determined for 1800MHz and 900 MHz spectrum remains high in our opinion, due to the sector's profitability remaining well below the expected margins for mobile operations in emerging markets. This, coupled with uncertainty around CDMA spectrum pricing, M&A guidelines not yet finalised, and rupee instability, will condition auction interest".
The Telecom Commission had fixed a base price of Rs 1,765 crore per MHz for pan-India spectrum in the 1800 MHz band, 15 per cent higher than the Trai's suggested rate of Rs 1,496 crore. The Telecom Commission had recommended 25 per cent higher base price over Trai's price for 900 MHz and will cost at least Rs 360 crore per MHz for Delhi, Rs 328 crore for Mumbai and Rs 125 crore for Kolkata.
The proposal
* The Telecom Commission had recommended an up to 25% hike in reserve price over that suggested by Trai
* With this approval, the government has moved closer to clear the issues after the Supreme Court order of February 2012 cancelling 122 licences
* The government has decided that telecom companies whose 20-year leases are over will have to pay for renewal the price discovered at the auction.