2G spectrum: Reserve price high; auction maybe subdued, say experts

A panel of experts comprising SC Khanna secretary-general, Auspi, Jaideep Ghosh, partner, advisory, KPMG, Mahesh Uppal, telecom analyst, Sanjeev Aga, telecom industry veteran, Mritunjay Kapur, MD, Protiviti and Kunal Bajaj, director-India, Analysys Mason explained to CNBC-TV18 the various aspects of the reserve price and its effect on the auction and impact on the telecom industry.

Below is an edited transcript of the comments from the panel of experts on CNBC-TV18. 

Q: The announcement of the reserve price of Rs 14,000 crore is a very important development. According to the Cabinet proposal, CDMA operators were to receive 1.3 times the valuation of Rs 14, 000 crore. What is your opinion?

SC Khanna: The reserve price of Rs 14,000 crore is too high because we don't contribute towards the liberalisation of spectrum. The price for CDMA spectrum to be 1.3 times more than the normal spectrum is exorbitant. There is hardly any pressure on the CDMA spectrum and when the licences were given to Sistema Shyam, there was no takers for CDMA spectrum.

Q: There are four slots that simply disappeared after the Supreme Court's cancellation order. It was expected that after the Supreme Court order the same number of slots or the amount of spectrum that was being cancelled would be handed out in an auction to provide a level-playing field for those whose licences were terminated and for others who were interested. Is the problem of artificial scarcity going to impact the auction?

Jaideep Ghosh: I think in terms of the spectrum available, this was anticipated. I tend to agree that on a standalone-basis the reserve price seems to be definitely higher. The bidding for spectrum at the auction could be interesting.

Q: What are your comments about the Rs 14,000-crore reserve price along with the fact that the charges for spectrum usage will not be a flat 5% as previously recommended by TRAI?

Mahesh Uppal: Clearly this is an improvement - the price is almost Rs 4,000 crore less which is close to a billion dollars less. So companies should welcome it. But the high reserve price is likely to be exceeded in the auction when the bidding starts.

So companies would clearly be concerned about the new cost that they will be forced to work with - after being used to relatively cheap spectrum all these years.

Irrespective of the fact that it looks more realistic, the price is very high. So, companies would be disappointed because it is not a price or a cost that they can easily pass on to their consumers as the market is too competitive. The consequence of this high cost will have to be borne by the companies rather than consumers.