The Empowered Group of Ministers (EGoM), the minister panel responsible for finalizing rules for the upcoming 2G spectrum auction, has recommended a reserve price of Rs 14,111 crore and Rs 15,111 crore for a block of 5 MHz of spectrum in the 1800 MHz band on a pan-India basis, reports The Economic Times. This reserve price is around 20% lower than the reserve price suggested by the TRAI, which was Rs 18,100 crore and translates to Rs 2822 crore per MHz and Rs 3022 crore per MHz of GSM spectrum in the 1800 MHz band.

The panel has also recommended that the minimum base price for  CDMA spectrum in the 800MHz band should be fixed at 1.3 times of the minimum base price fixed for GSM spectrum, as indicated by the report. This translates the reserve price to Rs 18,344 crore and Rs 19,644 crore for a block of 5MHz of spectrum in the 800MHz band and to Rs 3668 crore per MHz and Rs 3928 crore per MHz of CDMA spectrum in the 800 MHz band.

The report also states that the minister panel has apparently provided the union cabinet an option to keep the spectrum usage charge at 5% of the operator’s annual revenues or charge them as per the current rules which ranges between 2-7% depending on the spectrum quality and whether the operator has 3G spectrum in the country.

GSMA Wants Reserve Price Further Lowered

The GSMA stated that it believes the price range recommended by the Empowered Group of Ministers is relatively satisfactory as compared to the price range suggested by Telecom Regulatory Authority of India (TRAI) earlier this year, but it was still high in terms of international best practices and could possibly hinder the continued investment in mobile technology in India. It also said that spectrum usage charges should be kept at a minimum.

However, COAI (Cellular Operators Association of India) expressed dismay that the EGoM hadn’t taken in consideration the unsustainable high reserve prices which will significantly increase costs, thereby driving the increase in tariffs. It also noted that the spectrum usage charges is fixed at less than 1% internationally where the spectrum has been allocated through the auction process and is set to only get back the administrative costs related to managing spectrum.

What The Telecom Commission Had Recommended

In May 2012, The Telecom Commission, the Indian government’s highest decision making body on telecom matters, had recommended that at least 10 Mhz of spectrum should be sold through auctions,in contrast to TRAI’s recommendations of auctioning only 5 Mhz spectrum. The commission said that the additional spectrum should be made available only if spectrum is left after reserving it for future need of refarming.

While the commission didn’t take a final decision on spectrum pricing, it said that the auction will take place in 8 blocks of 1.25 MHz each, out of which new telecom companies will need to buy minimum 4 blocks (5 MHz) and existing players can buy up to two blocks (2.5 MHz). If a new player was not able to get 4 blocks, the government would then provide additional spectrum in blocks of 1.25 MHz each.

What The TRAI Had Recommended

In April 2012, The TRAI had recommended that the auction of spectrum should be conducted in multiple rounds. It had also said that auctions shall be open to all incumbents holding CMTS/UAS licenses, however not to those that hold spectrum above the prescribed cap. The authority had recommended a reserve price of Rs 3,622.18 crore per MHz in 1800 MHz band, Rs 7244 crore in 800 and 900 MHz band, and Rs 14,000 crore in 700 MHz band for spectrum auctions. It had also recommended refarming of spectrum in the 900 MHz band, which is more cost effective for telcos. This translated to a reserve price of over Rs 18,100 crore for a block of 5 Mhz in the 1800 Mhz band for 2G spectrum, since the authority proposed a limit of 5MHz in each of the 22 circle.