Govt. Approves 50% Price Cut For CDMA Spectrum

After the failure of the 2G auction in the month of Nov 2012, the government came up with a reduction in the minimum price of the 800 MHz spectrum. On Jan 17, 2013, the Union Cabinet approved the proposal for a 50% price cut in the reserve prices as suggested by Empowered Group of Ministers (EgoM). The auction for GSM and CDMA will be held in the month of Mar 2013 and will be completed by Mar 31, 2013. Previously, the Cabinet had approved a 30% deduction in reserve price of 1800 MHz band for GSM services in circles like Delhi, Mumbai, Rajasthan and Karnataka.

For CDMA services, the companies would now need to pay a minimum of Rs 1,820 crore for a 1 MHz spectrum, as against at least Rs 3,640 crore and Rs 18,200 for 5 MHz. But now, they need to pay Rs 1,820 crore for a 1 MHz spectrum and Rs 9,100 for 5 MHz. CDMA operators who are currently operating and holding more than 2.5 MHz spectrum will need to pay the charges as per the revised price, from Jan 1, 2013 till the new charges are announced.

The telecom auction held in Nov 2012 had failed to attract the expected number of bidders due to the higher reserve price set by the government. Telecom operators such as Bharti Airtel, Vodafone, Idea, Tata Teleservices, Telenor and Videocon had submitted applications to participate in the 2G auction. Later, however, Tata Teleservices had opted out of the auction due to the high price set for the spectrum.

Through these changes in the reserve price cut, the government is aiming to increase the number of telecom operators’ participating in the Mar 2013 auction. Reliance Communications and Tata TeleServices, which are existing operators in CDMA spectrum, are expected to benefit from this approval. Sistema Shyam, another CDMA operator, is also expected to participate in the auction.

While the 50% price cut seems to be a good step to attract telecom operators for the auction, it remains to be seen whether these steps will be able to catch the bidders’ eye. Moreover, such aggressive price cut also reflects the government’s effort to mend its financial position, which has worsened in the last couple of years.