TRAI recommends cut in spectrum auction floor price

India on Monday proposed a cut of up to 60 per cent in minimum auction prices for mobile phone spectrum in a response to lukewarm interest from telecom companies in two previous sales.

The proposed price cuts by Telecom Regulatory Authority of India (TRAI) could get a positive response from carriers such as Bharti Airtel Ltd and Vodafone Group Plc's local business.

The companies did not immediately comment.

The government has switched to auctioning off spectrum instead of awarding the licences on a first come, first served basis, after a scandal over licenses came to light in late 2010.

But most carriers stayed away from an auction last November and another in March this year because the reserve or minimum prices were too high. The government asked the sector regulator in July to recommend new prices.

A successful auction would help to improve the government's strained finances and meet its budgeted fiscal deficit target of 4.8 per cent of GDP in the fiscal year to end-March. The proposals need cabinet approval.

When asked if the previous minimum prices were too high, Rahul Khullar, chairman of TRAI, said: "Short answer: 'yes'."

"The approach has completely changed from the previous pricing regime."

The regulator has recommended a 37 per cent cut in the all-India reserve price of the 1800 megahertz frequency band that are used for basic mobile services. The suggested new price is 14.96 billion rupees per megahertz.

It recommended around a 60 per cent cut in the reserve price of the more-efficient 900 megahertz band that will be auctioned in three key cities - Delhi, Mumbai and Kolkata - as Bharti and Vodafone's licenses are due for renewal next year.

The regulator has also recommended scrapping an earlier policy whereby companies could automatically retain part of their existing spectrum in the 900 band, provided they paid a price determined by an auction for the airwaves.

Under the new proposals, companies such as Bharti and Vodafone would have to bid again for all the spectrum that they currently hold in the 900 band.

Rajan Mathews, a senior official at a lobby group, said he was pleased overall with the new recommendations. But he said not allowing leading carriers to keep part of their spectrum posed a risk for these companies.

"Clearly, we'll see much more robust bidding in the auction but where it will lead to is the question," said Mathews, director general of the Cellular Operators Association of India.

The regulator has also recommended that carriers should be allowed to trade spectrum they buy through auctions, including the third-generation (3G) spectrum they bought in a 2010 sale.

The regulator also recommended that the annual spectrum usage charge be set at a flat 3 per cent of companies' revenue for the spectrum they buy from auctions. That would be a departure from the current practice where carriers pay 3-8 per cent, depending on their spectrum holding.

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