2G spectrum: Look beyond reserve price, says telecom secy

"We are not dealing with a greenfield situation like the 3G auction," he explained. All spectrum is being auctioned as liberalised spectrum and new operators will have to bid for at least four blocks existing operators can bid for a maximum of two slots block of 1.25 Mhz to allow players to bid for 5 Mhz.

All participants have to keep the letter and spirit of the Supreme Court's order in mind. The government has to ensure supply is calibrated to demand. "Our immediate goal is to select the auctioneer," he said. Now the initiative rests with the auctioneer and the bidders. The schedule of the auction is to be finalised in consultation with the auctioneer.

Below is an edited transcript of the interview on CNBC-TV18.

Q: While the government has shaved off about a USD 1 billion from what TRAI had recommended as the reserve price, telecom companies are still unhappy. They have, in fact, gone as far as to call it an 'extortion' and not an 'auction'..

A: Actually, the reserve price that has been fixed, as you just heard the minister, is only the starting point of the auction. There are several other factors equally important and which need to be taken into consideration. Firstly, there is the decision on the spectrum usage charge, which continues with the existing slab rate, starting from 3% and goes up to 8% depending on the quantum of the spectrum held.

Two other decisions will have a major impact on how one should look at this decision. The first one is on the mortgage of spectrum. As far as mortgage of spectrum is concerned, it can be mortgaged to banks and this would make it easier for companies to raise money.

It would make it easier for banks to lend money and banks have also been given the flexibility to auction the spectrum in the event of default, a factor, which was regarded as important for the comfort-level of banks. So, taking all these together the flow of funds would become much easier.

The other decision is regarding the terms of deferred payment, which actually makes payment possible in several installments, the upfront payment is only 33% in the case of GSM, 25% in the case of CDMA and up to a two-year moratorium the rest of the amount is to be paid over 10 annual installments, so all this makes the entire package much more attractive than just a number, which is only the reserve price.