2G auction: Criticism over high prices has govt seeking clarity

As the government makes preparations to auction 2G or second-generation spectrum, the base price continues to be an issue of concern.

The Telecom Regulatory Authority of India (TRAI) has proposed a 10-fold rise in the auction starting price over what carriers had paid when they got their 2G licenses in 2008. But today, the Telecom Commission, which is the highest decision-making body within the Telecom Ministry, sent back that proposal to TRAI for clarity on prices and other issues. “We wanted to understand the basis on which this reserve price has been arrived at ... what is the likely impact on tariff," R. Chandrashekhar, the top bureaucrat in the Telecom Ministry, said after a meeting of the Commission.

In 2008, mobile operators paid Rs 1,650 crore for each license; TRAI wants the base price to be set at nearly Rs 18,000 crore.

The auction of air waves has been ordered by the Supreme Court which cancelled 122 telecom licenses in February allotted by former telecom minister A Raja, who is in jail for helping ineligible companies to get cheap licenses. The court said the licenses must be reallocated through an open bidding process. The auction process, according to the court order, has to be completed by August.

In a joint letter sent last week to Telecom Minister Kapil Sibal, the heads of five carriers including Vodafone and market leader Bharti Airtel sought an 80 per cent cut in the proposed auction starting price. They said the high cost of spectrum would push up tariffs by up to 30 per cent.

The Telecom Commission, which is likely to meet next on May 14, expects TRAI to deliver clarifications within two weeks, Mr Chandrashekhar said. The regulator's proposals are not binding on the government. A panel of ministers has the final say on the auction rules.

The proposals from TRAI, if accepted, will be a blow to carriers such as Telenor that were banking on the auction to win back the permits they are set to lose after the court order. Telenor, which will have to spend at least $3.4 billion or Rs 17,928.2 crore at the proposed price to have 5 megahertz radio airwaves across all telecom zones, has warned that it will have to exit India if TRAI’s proposals are accepted by the government.

Leading global telecom lobby group GSMA has called the proposed auction starting price as "prohibitively high" and said it would curtail investments in networks.

The Telecom Commission is also seeking clarity from TRAI on the number of slots available in the auction, a proposed deferred payment mechanism and a proposal to reallocate or refarm spectrum bands held by established operators.

TRAI has proposed auctioning off 5 MHz spectrum in each telecom zone, less than a fifth of the airwaves to be made available after the cancellation of licences.

(With inputs from Reuters)