Govt. Issues Guidelines For Phase II Of Spectrum Auction

On Tuesday, Jan 22, 2013, the government declared auction guidelines for the second phase of the spectrum auction in the 1800 MHz, 900 MHz and 800 MHz band. The guidelines say that the auction for 1800 MHz and 900 MHz band will be conducted simultaneously, while the 800 MHz band will be auctioned separately. This auction is expected to generate an amount of Rs 45658 crore.

As per the guidelines, 12 blocks will be auctioned in the 1800 MHz band, 1.25 MHz each in both Delhi and Mumbai. The reserve price per block for the Delhi service areas is Rs 485.15 crore and Rs 474.92 crore for Mumbai. For the Karnataka and Rajasthan circles, the government will auction 8 blocks each in the 1800 MHz band. The reserve prices for the blocks in both the states are Rs 231.08 crore and Rs 46.96 crore respectively. This price is 30% less than the earlier reserved price, which was decided in the Nov 2012 auction.

The government has also made provisions for new entrants wanting to participate in the auction. 3 blocks are reserved for new entrants, bringing the total to 11 blocks in the service areas of Rajasthan and Karnataka.

In the 900 MHz spectrum, the auction will be conducted for 12 blocks each in Delhi and Mumbai and for 10 blocks in Kolkata service areas, all 1.25 MHz. The reserve prices for Delhi, Mumbai and Kolkata in this spectrum are Rs 970.30 crore, Rs 949.84 crore and Rs 227.44 crore respectively.

The guidelines say that successful bidders in this auction will be allowed to use any technology in the scope of their service license. The existing players have to convert their spectrum into a liberalised spectrum in the same band. Successful bidders in this auction are allowed to use the spectrum for 20 years.

As far as the bands are concerned, the 900 MHz band is more efficient than the 1800 MHz band, as the telecom companies need to deploy fewer towers for 900 MHz.

Telecom company Telenor is expected to bid in this auction for Mumbai service areas. This auction will also focus on telecom operators in the 900 MHz band whose licenses are up for renewal later in Nov 2014. The licenses of Vodafone and Bharti Airtel will expire in 2014-15. This makes it essential for these operators to take part in the auction, leading to cash outflow from these companies. While Vodafone is not listed, investors would do well to keep a close watch on Bharti Airtel and its finances.

The timeline for the auction is not specified in the guidelines. Earlier, the government had declared that the auction would open on March 11, 2013.

The Cabinet has already cut the reserve price rate of the GSM spectrum by 30% and the CDMA spectrum by 50% because of the failure of the first phase of auction in Nov 2012 and to attract more bidders for the second phase.

Through this auction, the government wants to efficiently utilise the spectrum and to generate a market determined price for it. This will also help the government to narrow down their fiscal deficit, which has been running quite high in recent years. We need to wait till the auction dates are announced. After the failure of the first phase, it will be interesting to watch whether the government will be able to raise the targeted amount of Rs 45658 crore in this upcoming auction and bring some relief to its finances.