2G Spectrum Auction Failure: Industry blames on high reserve price

The much-awaited 2G spectrum auction fell flat on its face with just Rs. 9,407 crore being fetched in the process contrary to the high valuation expected by the government. The government had anticipated Rs 40,000 crore.

The bids received are far cry from the revenue that the government was expecting from the auction reclaimed after the Supreme Court canceled 122 2G licenses issued in 2008. The government had set a bid starting price of Rs 14,000 crore for 5 megahertz of GSM airwaves space in all of India's 22 telecommunications zones. The base price was more than seven times what operators paid in 2008.

Five telcos — Bharti Airtel, Vodafone, Telenor-promoted Telewings, Videocon and Idea Cellular- had participated in the bids. Voice&Data spoke to the industry stakeholders as well as the participants to get their views on the entire saga on the 2G spectrum auction.

Ashok Sud, secretary general, AUSPI said" The results have confirmed what Auspi had said long time back at the time of recommendations from the government . The reserve base price set by the government were too high.The government should take the entire ownership rather than blaming the TRAI for it. As the government had full mandate to revisit the recommendations made by the TRAI . Further to this if the government continues with the 'one time charge' recommendation, then it would be doing one more mistake in the direction. Its time for the government to sit back and without being pressurized by external factors analyze the entire situation and come up with an entirely fresh chapter that is in interest with the industry as well as the consumer."

"As far as the bidding of operations is concerned, operators like Telenor and Videocon had no option let to come and participate in the bidding and save their business and support their investment.So in a way they were forced to put in their money," he added.

"All along the COAI has maintained that the reserve price was guaranteed to have a detrimental impact on the auction. The COAI 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 root of the problem lies in the procedure adopted by the government in executing the auctions."

"Moreover, majority of the bidders are actually operators who have lost their licenses 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.Finally, the limiting of spectrum available for auction, which contrary to the Supreme Court ruling , added to the sense of uncertainty and fear of “irrational bidding” for many potential bidders," a COAI statement said.

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.

An official statement from Vodafone said" Vodafone firmly believes 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. The spectrum auction should be held simultaneously for all the service areas." 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.”

Idea Cellular was the second biggest winner getting spectrum in 8 circles which included all the seven circles where its licenses were canceled and an additional win in Bihar where it licenses were unaffected by the apex court order that canceled 122 telecom permits in 2G scam.

Speaking about the win, Mr. Himanshu Kapania, Managing Director, Idea Cellular said, “Today’s auction outcome is indicative of our commitment to our subscribers, employees, and shareholders. Idea Cellular continues to have a pan India footprint and we will continue to provide seamless voice and data coverage to our over 115 million users spread across the country. The high reserve prices, notwithstanding, the need and desire to ensure continuity of service to our subscribers was upper most in our mind.”

Showing concerns over the high reserve price for the auctions, the company said that in the overall analysis the high reserve price and several large markets remaining unsold, will prove to the Government that though spectrum may be a infinite resource, it certainly does have a finite price, and increasing the reserve price to stratospheric levels will not result in any greater value being realized.

Norway's Telenor and Videocon won back their licenses in six circles each, and will shell out Rs 2,222 crore and Rs 4,018 crore respectively.

Videocon Mobiles CEO Arvind Bali said the circles his company has bagged are Uttar Pradesh East, Uttar Pradesh West, Madhya Pradesh, Bihar, Gujarat and Haryana. The company had lost 21 licenses .Now we will be operational in seven circles – Punjab is already operational.

Bali said with today’s spectrum in Videocon’s kitty, the company will cover 50 percent of the country’s population as far as mobile services are concerned.

Telenor's total bid in the spectrum auction was INR 40.18 billion of which 33 per cent is to be paid up front.

"I am very pleased that Telenor Group has acquired the necessary spectrum to provide mobile services in India, as a continued presence in the country is important for our growth strategy. Since Telenor started operations in India we have proven our industrial capabilities by establishing a cost-efficient and highly competitive mobile operation with a significant customer base. The fresh licenses provide clarity for customers, operators and partners after a long period of uncertainty. We are looking forward to a more predictable and stable regulatory environment," said Telenor Group President and CEO, Jon Fredrik Baksaas.

"The ten months of uncertainty after the license cancellation have tested the organization's ability to keep focus, growth and talent intact. Emerging successful in that test means that a much stronger, confident and competitive team has now won back its right to continue. We have brought competition and affordability to the Indian telecom sector, and I promise that we will continue to do that in the future," said Sigve Brekke.