Spectrum tenure may be halved to 10 years to reduce upfront airwaves cost for companies

Mobile phone companies may to shell out significantly lower amounts for airwaves in the upcoming auctions if the panel of ministers on spectrum sale accepts a proposal to sell this scarce resource for a 10-year period.

The Telecom Commission, the highest decision making body of the communications ministry, will present the Empowered Group of Ministers (EGoM) headed by finance minister Pranab Mukherjee, the option of halving the airwaves tenure to 10 years.

Currently, airwaves sold through auctions, or even those that were issued to companies bundled with their mobile permits are valid for a 20-year period.

A reduced tenure will bring down the reserve price or the minimum price of the airwaves in the upcoming sale process.

Last month, sector regulator Trai had proposed that mobile phone companies that lost their permits after the Supreme Court cancelled licences awarded in the scandal-tainted 2008 sale, as well as incumbents, pay a minimum of Rs 3622 for every unit of 2G spectrum in the 1800 MHz band. All operators had slammed the regulator and termed the reserve price as being ‘exorbitantly high’ while also warning that the steep increase in spectrum costs could lead to a 100% hike in tariffs.

“We have asked Trai to work out the reserve price if the spectrum is given for a 10-year period. Halving the period of possession of airwaves does not imply that the reserve price will be 50% of what Trai had recommended earlier. This is one of the options that will be presented to the EGoM,” Telecom secretary R Chandrasekhar told ET.

The EGoM that will take a final call on all issues related to spectrum auctions is scheduled to have its first meeting on June 5.

The Telecom Commission (TC) is also of the view that a 10-year tenure for spectrum will enable mobile phone companies to raise the requisite funds to pay for this resource.

“The TC has rejected Trai’s proposal to allow companies stagger their payments for spectrum bagged through the bidding process. Under this scenario, most operators may not be raise funds for an upfront payment. Reducing the airwaves possession to 10 years will lead to operators have to pay a significantly lower amount upfront,” a telecom ministry official said.

The telecom secretary Chandrasekhar said that selling airwaves for a 10-year period had a slew of advantages and disadvantages for both the government and companies.

“The upside is that telcos have to pay less, but at the same time, a ten-year tenure adds to the uncertainties. If technological advancements allow airwaves to be used for different types of services, the value of spectrum will go up and the government can resell this same resource after 10-years,” he added.