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Thursday, July 26, 2012

CDMA airwaves in the 800 MHz band be fixed at 1.3 times the base price for GSM airwaves in the 1800 MHz band.

A high-powered ministerial panel responsible for finalising rules for upcoming second generation (2G) spectrum auctions recommended fixing of minimum price for CDMA airwaves in the 800 MHz band at 1.3 times the base price for GSM airwaves in the 1800 MHz band. Empowered Group of Ministers (EGoM) headed by home minister P Chidambaram, in its meeting on 20 July 2012 had rejected the department of telecom’s (DoT) suggestion that reserve price in the 800 MHz band for CDMA players be twice as that of airwaves in the 1800 MHz band. In the same meeting the EGoM had recommended that the minimum price for GSM airwaves be cut to Rs 14000 to Rs  16000 crore. The EGoM’s proposal disappointed the mobile phone companies who were pitching for an 80% reduction from the Rs 18111 crore proposed by the telecom regulator, TRAI.

The EGoM has recommended two specific reserve price for the 1800 MHz band at Rs 14111 crore and Rs 15111 crore for 5 units of airwaves on a pan-India basis. The group of ministers provided two options to the Cabinet on the spectrum usage charge that forms part of the revenue share for mobile phone companies. The first option is to (1) keep this levy at 5% of the telco’s annual revenues, or (2) calculate this levy according to the current rules. The spectrum usage charges currently range between 2% and 7% of the telcos’ annual revenues depending on two factors – the quantity of airwaves as well as the availability of third generation airwaves.

One unit of GSM airwave in the 1800 MHz on a pan-India basis to cost Rs 2822 crore and Rs 3022 crore, respectively, at the base price of Rs 14111 crore and Rs 15111 crore, respectively. Airwaves will be sold in blocks of 1.25 MHz and on a circle-wise basis. India is divided into 22 circles. This thus translates to a reserve price of Rs 18344 crore to Rs  19644 crore for 5 MHz of airwaves in the 800 MHz band for CDMA companies. For a single unit, the telecom companies will have to pay between Rs 3668 crore and Rs 3928 crore. The mobile phone companies in the GSM space slammed the inter-ministerial panel for suggesting that the base price for 800 MHz be at 1.3 times that for 1800 MHz.

The EGoM also specified that new entrants and companies that lost their mobile permits on account of the Supreme Court’s ruling can bid for a maximum 6.25 MHz of airwaves in the 1800 MHz band in the upcoming auctions, while existing operators in the GSM space can bid for a maximum of 2 blocks or 2.5 MHz of airwaves.

Discrimination between GSM & CDMA
It is argued that discrimination between GSM and CDMA is being widened by keeping the auction reserve price for 800 MHz at 1.3 times of 1800 MHz on the rationale that less than 5 MHz is being put up for auction. A similar option is however not being extended to GSM operators to retain their 900 MHz spectrum at a price of 1.3 times of 1,800 MHz in the event that less than 5 MHz is obtained at the time of the license extension.

The requirement for 25% of upfront payment for CDMA and 35% of upfront payment for GSM is another example of discrimination between CDMA & GSM. This discrimination will go against the objective of creating a level playing field among the operators.
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