With the Government today announcing that it will re-auction the four circles, which did not find any bidders, the empowered group of ministers on telecom could completely overturn the general feeling that it has been a damn squib. And make the auction of 1800 MHz successful.
To achieve that it has to simply do one thing: halve the base price of the two coveted circles Delhi and Mumbai which despite constituting for over 40 per cent of the total base price did not find any buyers as they were simply too expensive. By this simple move the government will bring down the base price for a pan India 1800 Mhz spectrum of 5MHz to Rs 10,911 crore-which is 22 per cent lower than the Rs 14,000 crore fixed by the Government. And most operators say that it looks reasonable as it is nearly half of what TRAI had recommended -18,000 crore.
TRAI officials who were involved in fixing the base price as directed by the Supreme Court say that in their meetings with operators many of them said that the base price acceptable to them was at around Rs 10,000 crore for a pan India spectrum.
There is of course a solid logic for the government to drop the base price of these two circles to the same level of that of say a circle like Tamil Nadu. For instance the base price for Delhi is a staggering Rs 693.06 crore for 1.25 Mhz of spectrum and that of Mumbai is Rs 678.45 crore. Yet Delhi constitutes for only 8.41 per cent of the total telecom revenue of the country and Mumbai constitutes for 7.1 per cent of the revenue.
A circle like Tamil Nadu constitutes for 8.75 per cent of the telco revenue, much higher than Delhi or Mumbai. Yet the base price for the circle is less than half of what one has the fork out for the two metros at only Rs 306.09 crore. So there is a clear justification to bring the base price of the two metros to the level of Tamil Nadu
This discrepancy had arisen because TRAI had based its base price of circles on the basis of the 3g auction price and not on the overall contribution they make to telecom revenues. With 3g skewed towards data obviously the price of 3g spectrum in these two cities, where there is a large data consumer base was one of the highest. It is this discrepancy which the government now has to remove.
The other good reason is that legal experts say that as the government gives licence circle wise each is a separate legal entity. So reducing the base price in the unsold circles will not lead to any legal problems from operators who have bought spectrum in the auction in other circles at a higher price. The problem would have arisen if the Government had decided to reauction to remaining unsold spectrum in these circles too. Which they have not.