Tuesday, August 18, 2009

2G pricing to hinge on 3G auctions M-9426201999

18 Aug 2009, 0107 hrs IST, Shalini Singh, TNN

NEW DELHI: The department of telecom (DoT) has indicated that it is unlikely to implement its own 2G spectrum report of May 2009 till the 3G
spectrum auctions have been completed.

This marks a significant policy decision that will permanently alter the price at which spectrum in general and more specifically, 2G spectrum, will be allocated in the future.

According to DoT officials, this decision is driven by the logic that market pricing for 2G spectrum cannot be determined in any other way, except benchmarking it against the forthcoming 3G auction price.

In 2008, telecom minister A Raja awarded pan-India licences with 4.4 MHz of 2G spectrum to 120 licensees at a cost of Rs 1,651 crore on a first-come-first-served basis. This translated to a per MHz price of Rs 17 crore and was defined by the highest bid offered in spectrum auctions held in 2001 when mobile subscriber base was merely 4.2 million.

Faced with criticism for choosing a 2001 price to allocate a scarce asset in 2008, the government prepared a detailed report in 2009, which agreed that all future spectrum should be allocated at a market price. However, there is still no clear benchmark for pricing spectrum beyond 4.4 MHz, which justifies the decision to hold 3G auctions to help determine market price.

If this sequence of 3G auctions before 2G pricing is implemented, it may push per MHz price of spectrum upto Rs 45 crore. This is because, at a reserve price of between Rs 3,500 crore to Rs 4,040 crore, the government is likely to receive at least Rs 5,000 crore for a nationwide slot of 5 MHz of 3G spectrum. This will set 3G price at nearly three times the price at which government sold 2G spectrum last year.

The 3G yield, however, will eventually depend upon the number of slots, total number of bidders and the final reserve price. M-9426201999

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