It took two unsuccessful auctions and huge notional revenue losses for the government to realise that rational spectrum pricing is the biggest motivation for operator participation.

Consequently, TRAI suggested a sharp decline in the pan-Indian reserve price for the spectrum auction scheduled to be held in end-2013 or early 2014. For the 1800 MHz band, the bid price for pan-Indian spectrum has been reduced from Rs 36.40 billion per MHz in the last auction to Rs 14.96 billion per MHz. For the 900 MHz spectrum to be auctioned in the Delhi, Mumbai and Kolkata circles, the bid price has been reduced by over 60 per cent to Rs 2.88 billion per MHz, Rs 2.62 billion per MHz and Rs 1 billion per MHz respectively. The regulator has recommended that the spectrum usage fee for newly acquired airwaves be fixed at a flat rate of 3 per cent of the adjusted gross revenue, instead of the previous 3-8 per cent.

TRAI has also suggested withdrawal of the policy that allows companies to automatically retain a part of their existing spectrum in the 900 MHz band by paying the auction-determined price. It has stated that operators should bid for the spectrum afresh so that a level playing field can be ensured. This has been opposed by the incumbents who hold substantial spectrum in the 900 MHz band as they stand to lose the same in case they fail to win back these airwaves in the auction.

However, on the whole, TRAI’s recommendations are a positive step for the industry, especially for GSM players, who did not participate in the last auctions citing a high reserve price.

Meanwhile, companies such as Videocon and Telenor, which acquired spectrum at exorbitant prices in the November 2012 auction, have sought compensation, but it is unlikely that the differential will be refunded.

TRAI’s recommendations are yet to be approved by the Telecom Commission and the Cabinet. Adoption of the recommendations could result in two key benefits: players will have access to additional spectrum to improve the quality of mobile services and the government, which is facing a huge fiscal deficit, would garner additional revenues. A successful 2G spectrum auction would generate Rs 408 billion in revenues.