TELCOS WARN OF HIGHER CALL TARIFFS

Cabinet Sets Base Price for Spectrum Bids at14k cr

Mobile phone firms see red as they had been demanding an 80% reduction from the . 18,000 cr proposed by Trai

    The Union Cabinet on Friday set the minimum price for airwaves in the upcoming auctions at . 14,000 crore, attracting sharp criticism from mobile phone companies, which had been demanding an 80% reduction from the . 18,000 crore proposed by sector regulator Trai. 
This translates into a base price of . 2,800 crore for every MHz or unit of airwaves in the 1800 MHz band, which is used by mobile phone companies on the GSM platform. 
Bharti Airtel, India's largest telco by customers and revenues, warned that higher spectrum costs would lead to increase in tariffs for consumers. 
Idea Cellular Managing Director Himanshu Kapania said a reserve price of . 14,000 crore does not present a viable business case. "Forget . 14,000 crore. There is no business case even if the reserve pricewereset at. 1,650crore (per MHz). Idea islosing . 170crore per quarter in each of the seven circles where our licences were quashed by the Supreme Court," he said. Bharti Airtel's India and South Asia CEO, Sanjay Kapoor, told ET that "telcos would be left with no option but to pass on the spectrum costs to customers, leading to higher tariffs". "This isunreasonably high andwill adversely impact the health of the industry, which is already going through a bad patch. It goes againstthe government'sobjectiveof affordable mobile services and will undo all the good worktelcoshavedoneover thelastdecade,"he said. Both Kapania and Kapoor did not reveal if their companies would participate in the upcoming auctions. 
Telecom Minister Kapil Sibal said the Cabinethad also approvedthe recommendationsof the panelof ministerson spectrum tokeep the reserve price of the 800 MHz band (used by telcos on the CDMA platform) at 1.3 times that of the 1800 MHz band. This implies, the reserve price for CDMA spectrum for companies like Sistema will be . 18,200 crore for 5 units. 
The Cabinet also decided that mobile phone companies would have to share 3-8% of their annual revenues asspectrum usage charges. Trai had recommended that this levy be fixed at 1% while the telecom department wanted it to be fixed at 3%. The Cabinet's decisions are in line with the recommendations of the panel of ministers on spectrum headed by Finance Minister P Chidambaram. Most Key Policy Issues Settled 
The empowered group of ministers (EGoM) had recommended two options to the Cabinet — a minimum price of either . 14,000 crore or . 15,000 crore — for GSM spectrum. It had also suggested that the spectrum usage charge be hiked to ensure there was no revenue loss to the exchequer The Supreme Court had quashed licences of nine operators in February and directed the government to issue fresh permits through an auction process, and set an August 31 deadline to complete the process. 
The finalisation of the reserve price ensures that all key policy issues for the sale of airwaves have been settled, with the exception of whether existing operators should pay the auction-determined price for all airwaves they hold. The government had decided to take up this issue after the outcome of the presidential reference in the Supreme Court. 
India will sell up to 13.75 MHz of spectrum in the 1800 MHz band in the auctions. The government has already said telcos can stagger their payments for spectrum bagged through the bidding process and also permitted operators to mortgage airwaves and use spectrum as collateral to raise funds from banks for the upcoming auctions. All spectrum sold through auctions will be 'liberlised', implying that operators can deploy any technology on these airwaves. 
At a reserve price of . 2,800 crore per MHz, the government will make a minimum of . 38,500 crore, but the staggered payment option will result in only 33% of this, or about . 12,833 crore, coming in the current fiscal. If a CDMA operator like Sistema were to bid too, and with only 3.75 units of airwaves on sale for companies on this technology platform, the government can get an additional . 22,750 crore, implying that the exchequer can rake in a maximum of about . 35,000 crore from the sale of airwaves this fiscal. The Cellular Operators Association of India (COAI) said it was 'disappointed' at the spectrum pricing decision, and added the government had failed to provide any relief to the problems confronting the industry such as tariffs, affordability, health of the sector and national development. "The reserve price of . 14,000 crore is unreasonable and still very high and will adversely impact the business viability of the operators," the industry body added.