The much-talked about 2G mobile phone spectrum auction today virtually flopped with just Rs 9,407 crore being garnered in the process contrary to the high valuation estimated by the CAG in its damning report of the government two years ago.
The auction, which lasted just two days, got total bids worth Rs 9,407.64 crore, Telecom Minister Kapil Sibal told reporters at the end of the bidding, which was a far cry from the 35-day bidding for the 3G spectrum in 2010 that got Rs 67,719 crore.
The government was targetting a minimum of Rs 28,000 crore from the sale of 2G spectrum in the GSM band and the tepid response may upset its efforts to meet the revised fiscal deficit target of 5.3 per cent of GDP. Overall, the government had budget Rs 40,000 crore as revenue from spectrum sale this fiscal.
Sibal refused to comment on the CAG's estimation of Rs 1.76 lakh crore as the loss to the exchequer in giving away spectrum on first-come-first-serve basis in 2008.
In an apparent dig at the CAG, he merely said, "the facts are before the nation and quite clear."
Going by the 3G auction price, the current sale should have fetched Rs 1 lakh crore but "what we have got is Rs 9,407 crore... so this is a market and that is how it plays itself out."
None of the five companies bidding for the spectrum made any offer for pan-India airwaves for which the reserve price was set at Rs 14,000 crore, a rate considered high by the industry.
Sibal said in all 101 out of the 144 blocks of spectrum on offer got bids.
Metro cities of Delhi and Mumbai, which accounted for 40 per cent of the base price of Rs 14,000 crore for 5 MHz of 2G spectrum, drew no bids.
The government had put on auction more than half of the spectrum that was freed from Supreme Court in February this year cancelling 122 mobile permits issued by the then Telecom Minister A Raja to nine telecom companies in 2008.
The Comptroller and Auditor General of India (CAG) had in 2010 said Raja's decision to give away spectrum at rates fixed in 2001 had caused a presumptive loss of Rs 1.76 lakh crore to the exchequer taking the price garnered in the 3G auction as the benchmark.
The government thereafter fixed a base at a rate almost equivalent to the third-generation (3G) auction price.
Further, as the government has promised to refund the license free paid in 2008, the net gain to the exchequer may be almost nil.
Dismissing allegations that companies colluded with the government, Sibal said "We have done exactly what the courts asked us to do. Infact the court asked us to sell (spectrum at a minimum price of) Rs 18,000 crore, we brought the price down because we wanted to sell, we wanted companies to buy."
"If we had fixed it at Rs 18,000 crore in terms of what Trai had recommended, this (even Rs 9,407 crore ) would not have been fetched," he added.
Lamenting the mess in the sector, Sibal said, "the consumer has not benefited at all because the nature and the kind of investments that ought to have gone into the sector have stopped and the sector has been in debt."
As per the provisional result, Vodafone emerged as the biggest winner getting additional spectrum in 14 circles of Jammu and Kashmir, Assam, Himachal Pradesh, Uttar Pradesh (East), Uttar Pradesh (West), Madhya Pradesh, Gujarat, Haryana, Bihar, Kerala, Orissa, North East, Punjab and Kerala.
Its market competitor Bharti Airtel managed only in Assam circles.
Poor response to 2G spectrum auction to swell fiscal deficit
Poor response to the 2G telecom spectrum auction is likely to make it difficult for the government to keep in check fiscal deficit and meet the revised target of 5.3 per cent of the Gross Domestic Product (GDP) in 2012-13.
As against the target of Rs 40,000 crore, the 2G spectrum auction, which concluded today, would fetch only Rs 9,407 crore. This was much less than the reserve price of Rs 28,000 crore fixed by the Telecommunications Ministry.
It is also unlikely that the entire amount would be available in the current fiscal as the telecom companies would have the option to stagger payment over three years.
In view of rising oil and food subsidy bill and subdued revenue collection, the government had increased the fiscal deficit target for 2012-13 to 5.3 per cent from 5.1 per cent estimated in the budget.
This too now seems difficult in the backdrop of tepid response to 2G spectrum auction and the disinvestment plans which have so far remained a non-starter.
As regards disinvestment, although the government has proposed to raise Rs 30,000 crore from stake sale in the state-owned enterprises, not a single PSU has hit the market in the first seven months of 2012-13.
The government had recently postponed stake sale in large companies -- Rashtriya Ispat Nigam Limited and aluminium major Nalco. The Finance Ministry, however, had been maintaining that the disinvestment target of Rs 30,000 crore would be met.
The government will take a call on disinvestment of Nalco in January after the release of the financial results by the public sector company.
"The second quarter results are not representative of the company's valuation. In October, there is a little visible improvement. So, we decided that it will be good to do it in the third quarter," Disinvestment Secretary Mohammad Haleem Khan had said.
High price key reason for 2G spectrum failure: COAI
The telecom industry today blamed the poor response to the 2G spectrum auction on the high reserve price set by the government.
"First and foremost among the many causes, is the clear recognition that an artificially high reserve price that bore no congruence to market realities was the key reason for the failure," GSM industry body COAI said in a statement.
The second factor is that the majority of the bidders are actually operators who had lost their licences and are compelled to participate in the auctions despite the high prices and the limited availability, simply in order to sustain their customers, businesses and to protect their years of investments, it said.
"Finally, the limiting of spectrum available for auction, which contrary to the Supreme Court ruling (to auction the entire spectrum related to the quashing of the impugned licences), added to the sense of uncertainty and fear of irrational bidding for many potential bidders," COAI said.
The artificial scarcity created by holding back spectrum combined with the high reserve price dampened any enthusiasm for aggressive bidding by the operators, it added.
"The auctions have concluded on the exact note as predicted," Cellular Operators Association of India (COAI) said.
It had stated that the high reserve price would ensure that there would be limited players coming into the market to bid, and had also indicated that there would be extremely muted bidding with several circles that would have no bidders at all.
"The results of the auction clearly indicate that the reserve price was completely off the mark, with none of the interested operators also not pitching for the circles that they had committed to participate publically," Prashant Singhal, partner in member firm of Ernst & Young Global, said.
The government's plan of Rs 40,000 crore has fallen flat and they would now need to go back on the drawing board with respect to 800 MHz and Delhi, Mumbai and Karnataka on 1800 MHz to figure out the market driven price, he added.
COAI said the root of the problem lies in the procedure adopted by the government in executing the auctions.
It, however, said, that auction is the "best and the most transparent way to determine the allocation and market price of a resource as rare as spectrum for commercial use".
COAI said only about 35 per cent of the total spectrum (only 27 per cent in terms of reserve price) put up for auction was actually bid for. So the amount of freed spectrum now held by the government (413 MHz) is a waste of precious national resources, it added.
Vodafone India, which won bids in 14 circles, said it had participated in the 2G auction to secure additional spectrum.
"Vodafone India has always maintained that auctions are the best and the only transparent method for allocation of spectrum. Our decision to participate in the 2G auction was to secure additional spectrum in many circles where we have not received any new 2G spectrum since 2008. Our customers grew in that period from 60 million to 153 million today," Vodafone India said in a statement.
Vodafone added that the entire spectrum that is currently unused (800 MHz, 900 MHz and 1800 MHz) should be put on auction at the same time with a "much lower reserve price" and the auction should be held simultaneously for all the service areas.
"Additionally, to ensure that there is a level playing field, all operators should be allowed to bid for all spectrum. Spectrum usage should be technology agnostic and the choice of technology should be left to the operators as market forces will decide which is best suited to meet customer demands," it said.
This will result in effective participation and bidding for spectrum, thus leading to a wider service offering with better quality of coverage for customers, while government will be best placed to meet its fiscal demands, it added.
"The government should also follow TRAI's advice to abandon staggered spectrum usage fees which are higher for operators who require more spectrum. This does not make sense if spectrum is bought in an auction and is paid for already," the statement said.
Spectrum usage fees should be flat and only represent the charge for administering the spectrum, Vodafone added.
Sectoral regulator Telecom Regulatory Authority of India (Trai) has advised to put this at one per cent of revenues.