In a major development the Cabinet has given nod to norms for spectrum auction. Speaking to CNBC-TV18, Rajan Mathews, Director General, Cellular Operators Association of India (COAI) said the quantum of spectrum has now been addressed this time by the government, which guarantees no shortage in the amount of the spectrum, across all bands.However, the pricing of the spectrum usage charge (SUC) continues to be the principle concern, he said, adding, "Clearly we'd asked for reductions in overall financial impacts viz-a-viz SUC charge; the issue of the licensc fee, the universal service obligation fund are some of the issues that could've been addressed in terms of reducing the financial burden on the industry." Below is the verbatim transcript of Rajan Mathews' interview with Surabhi Upadhyay on CNBC-TV18.
Q: What is your sense about the timing and what we can expect in terms of prices that we will see in this round of auctions?
A: Once the cabinet approves it, you have to go through the formulation of the NIA, you have to select your Auction House and that takes at least a 60 day period. So if you look at it from today, you can't expect something clearly before the end of August or so.
Q: Talking about industry demand coming down but the cabinet has ratified the telecom commission's plan to lower the spectrum usage charge also to about 3 percent, how do you think some of this is going to play out? Is the fact that there is now lower SUC, will that incentivise buyers to go out and be little more aggressive in their bids?
A: Somewhat, yes, clearly and it depends upon the fact of how much of the incremental spectrum is going to impact your overall SUC because as you recall, it is still a weighted average methodology. So, the 3 percent will come into your weighted average and if you acquire a whole lot of spectrum obviously it will skew it to the 3 percent. If it is not then it will skew it to the old number that you had. Also, remember that there is a floor so you cannot go below what you previously already paid to the government. The government has put that in to protect its revenue stream.
Q: What is your sense on the prices? We are yet to see details if the cabinet has upheld the reserve prices that we have seen, huge debate about 700 megahertz and whether it is overpriced, how much do you expect the government to rake in?
A: The principle area of interest will clearly be the 1,800 spectrum because that is the one that is most ardently used for even 4G, long-term evolution (LTE) types of application. So that is going to be there. The next will clearly be the 2,100-2,300. 700 as I said is highly desirable but again because of the pricing, we don’t see a whole lot of actual bidding for it. So we see the 1,800-2,100-2,300, so it is not unusual to say look at those reserve prices, you can expect those spectrum bands to be principally bid for.
Q: I get your point that it is 1,800 megahertz, that is what players will go after but what about 700 megahertz and its current avatar and at its current price of Rs 11,485 crore per megahertz. So how do you think that is going to go down with industry, will there be any demand for 700 megahertz?
A: There will be some demand for some circles because in some of the circles, the pricing is not too bad because as you recall, it has triggered off from 1,800 pricing. So in some of the smaller circles, the pricing is not too out of line and there maybe some interest in those circles but across the board, A circles, metros, Pan India, I don’t think there is an appetite at this point at these prices.
Q: This time around there is a lot of spectrum that has been put on the block. We are talking about 1,600 megahertz or thereabouts, the total quantity of spectrum held by operators right now is around 2,270-2,300 megahertz if I have the numbers right, so considering that there is so much of quantum of auction that has been put on the block and that is something that industry was asking for to get fair pricing, do you expect bids to be less aggressive?
A: I think there will be a moderation in the demand because remember in the last go around you were bidding back for what you already had. So, it was not an issue of putting up new spectrum, except in 2011, when you had 3G/4G. So, all the rest of the auctions you were bidding back and there was an almost must win situation because your business was at risk. Now you also have spectrum sharing, you also have spectrum trading, you also have had the whole optimisation exercise that has been almost completed in 1,800. So that reduces the immediate pressure. So clearly in the next two years or so additional spectrum will be required if we are going to meet the penetration demand. So at that point, additional spectrum will be required. Question is, will we buy it now or wait for sometime later?
Q: We know that the cabinet has given its go ahead now and it is supposed to be the biggest ever auction. Some of the numbers say that the total money that is going to be raised could be about Rs 5.5 lakh crore, maybe even higher. Give us your thoughts on what we are likely to see in this round?
A: The response is that we are very glad that the quantum of spectrum has now been addressed. So there is no shortage in the amount of spectrum and it is across all bands. The principle concern continues to be around the pricing of the spectrum and that is where the key concerns will be. Clearly we ha d asked for reductions in overall financial impacts vis-a-vis SUC charge, the issue of the license fee, the universal service obligation fund being reduced. So that is where issues could have been addressed in terms of reducing the financial burden on the industry.
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