On July 20, the empowered group of ministers on telecom took two important decisions — reducing the reserve price from Rs 18,000 crore and allowing the operators to make staggered payment in case they win spectrum in auction. While the first decision was taken despite the TRAI backing the higher price to the hilt, the second, though suggested by the TRAI, was rejected by the Telecom Commission, which is the highest policy-making body on telecom-related matters with the finance secretary as its member. The logical question now is what led the EGoM to take these two crucial decisions? The answer lies in the crucial presentation made by the secretary department of financial services, DK Mittal.

Mittal made two points before the EGoM: He had said the banks and financial institutions have indicated that it would be difficult for them to advance substantial funds to the sector at one go, considering the overall exposure of Rs 200,000 crore to the sector and the current extent of leveraging of the operators. Secondly, on the reserve price, he said banks have expressed their concern over the TRAI-recommended price leading to constraints in availability of funds for rolling out infrastructure.

The secretary also highlighted the fact that the government had made a budgetary provision of Rs 40,000 crore as non-tax revenue from auction receipts in the current fiscal and without the deferred payment scheme the same may get missed.

Interestingly, the points raised by Mittal were not highlighted by the finance secretary at the meeting of the Telecom Commission when the deferred payment scheme was rejected. In fact, earlier Mittal was instrumental in making way for operators to mortgage the spectrum they win with banks and financial institutions to raise money. It was he who after discussions with the Reserve Bank of India approved the measure, which was suggested by the TRAI and referred to him for views by the Telecom Commission. In doing so, he, however, protected the interests of the banks by inserting a clause that in the event of default the banks would have unfettered right over the spectrum and could sell, transfer or lease the same. The EGoM had in an earlier meeting approved the same with a minor addition that in selling the spectrum in default cases the banks should seek guidance from the department of telecommunications.

As is known, the deferred payment scheme basically allows the winners of spectrum to make an upfront payment of 33 percent of the final amount for the 1,800 MHz band and 25 percent in case of 800 MHz. Thereafter, there shall be a moratorium of two years for payment of balance amount, after which the balance amount shall be recovered in 10 equal instalments. However, the net present value of the bid amount would be safeguarded by imposing a suitable rate of interest.

On the reserve price, it was decided to lower it from Rs 18,000 crore to either Rs 14,000 crore or Rs 15,000 crore for 5 MHz of pan-India spectrum in the 1,800 MHz band. For spectrum in 800 MHz band, the same would be 1.3 times of the above amount while the spectrum which is being put up for auction here is 3.75 Mhz. The spectrum usage charge has been suggested at either a flat 5 percent of the operators' adjusted gross revenue or the current slab ranging between 2 percent and 8 percent. The TRAI had suggested the rate of 3 percent. –The Financial Express