The auction of 2G spectrum held on Monday turned out to be a damp squib with the government mopping up only Rs 9,224.75 crore after seven rounds of bidding. At the end of the day, bidding was under way in the two circles of Uttar Pradesh (east) and (west), the only two circles where the demand for spectrum has overshot what was on offer. Of the total 22 circles, for which spectrum was auctioned, bids were received in only 18 circles with four circles ? Karnataka, Delhi, Mumbai and Rajasthan ? not finding any taker. The government has targeted revenues of R40,000 crore but it?s unlikely, it will get anything close to that even after auctions resume on Wednesday.
?The total quantum bid for is a little over Rs 9,200 crore at the end of the fifth round,? telecom secretary R Chandrashekhar said, adding that of the 176 blocks of spectrum that were put on auction, bids were received only for 98.
This is the second time that the government is conducting auctions for the sale of spectrum, the first being in 2010 for 3G and BWA spectrum, a huge success that fetched it R1.05 lakh crore against the budgeted R35,000 crore. Analysts believe that had the auctions been held in January 2008, they may have earned the government far more given that the macro-economic environment then was better and the balance sheets of telcos less leveraged.
They also believe that with the government having drawn a blank in four circles, it may now need to come up with ways of making up for the shortfall.
Problems had cropped up for the government even before the start of auctions when the only two bidders ? Videocon and Tata Teleservices ? pulled out of the CDMA auctions citing high reserve price. This has left the government to think how to charge the one-time levy for spectrum held beyond 2.5 Mhz by CDMA operators like Reliance Communications and Tata Tele. Some problem has already cropped up for the government with the Supreme Court asking it why all the 430 Mhz vacated spectrum due to cancellation of licences were not put up for auction. The court has observed that the government was playing with its order.
The auctions, which began at 9.00 in the morning saw lukewarm response right from the beginning as the industry refrained from intensive bidding citing the base price of Rs 14,000 crore for 5 Mhz spectrum as too high. The government had put up eight blocks for auctions in all the 22 telecom circles with a provision of topping it up to11 blocks in all barring Delhi and Mumbai. While the new operators could bid for four blocks to be able get the minimum 5 Mhz to start operations, incumbents could bid for only two blocks.
There are only five operators – Bharti Airtel, Vodafone, Telenor, Videocon, and Idea Cellular ? participating in the auctions, which is being conducted after the Supreme Court in February cancelled all the 122 licences granted by the former telecom minister A Raja and asked for auctions to grant new licences. Though nine companies lost their licences, only two ? Telenor and Videocon ? are participating in the auctions with the rest keeping out.
In fact, Sunil Bharti Mittal, chairman and managing director of Bharti Airtel had predicted a few days back that the auctions would not be a success because of the high base price. Mittal had also said that his company was only participating because it did not want to be seen as boycotting the auctions.
With the revenue realisation falling woefully short of the target, there’s bound to be questions whether the high revenue loss estimated by the Comptroller and Auditor General of the allocation at a pan-India price of Rs 1,651 crore for 4.4 Mhz spectrum was correct. The answer is that that if the government had conducted the auctions, say in January 2008 it would have raked in revenues far in excess of its target because macro-economic situation was much better then than now apart from the balance sheets of the mobile operators and their need for spectrum. This got aptly reflected in the 3G spectrum auctions. The aggressive bidding by the operators for 3G and broadband wireless access was done because the much-needed 2G spectrum before that was given out to a host of new operators leaving the incumbents with no option but to put all their money to buy 3G spectrum. Had the 2G spectrum auction preceded 3G, it would have received higher bids because India is predominantly a voice-telephony market for which 2G spectrum is more suitable than 3G.
