2G spectrum auction ends in a whimper with less than Rs 10k-crore bids received

Written by fe Bureau | New Delhi | Updated: Nov 15 2012, 09:26am hrs
The 2G spectrum auctions ended on Wednesday with the government raising a Rs 9,407.04 crore against the budget estimate of Rs 40,000 crore.

In stark contrast to the 3G spectrum auctions of 2010, which went on for more than a month and fetched R67,000 crore, this time round the auction finished on the second day. It had begun on November 12, when the government was able to earn Rs 9,224.75 crore. There was no auction on November 13 on account of holiday for Diwali.

Actual government revenues may be even less as the companies have the option of staggered payment wherein only 33% needs to be paid upfront. Further, for companies like Idea, Videocon and Telenor, the government would also need to adjust their entry licence fee of R1,651 crore paid in 2008.

Briefing reporters, telecom minister Kapil Sibal said he does not wish to comment on the CAG report as the facts of spectrum auction are before the nation.

I do not want to comment on any institution but the facts are in front of the nation. The nature of the market in 2008, 2010 and 2012 are very different. It is very dangerous to extrapolate and take the situation in 2010 and apply in 2008 and similarly apply 2012 to 2008, Sibal said.

Videocon and Idea won spectrum in seven circles while Telenor got spectrum in six circles. Bharti Airtel won in one circle while Vodafone got 14 circles.

Videocon, Idea and Telenor were the among operators which had lost their licences when the Supreme Court in February cancelled all 122 licences granted on January 10, 2008 by former telecom minister A Raja. While Vodafone and Telenor were new operators losing licences in all 22 circles, Idea an incumbent operator, had lost licences in seven circles which were not covered by it earlier.

The auctions dragged on due to some excess demand in circles like Uttar Pradesh (east) and (west) and Bihar, all C circle circles where the reserve price was low. Of the total 22 circles, bids were received in only 18 circles with four circles Karnataka, Delhi, Mumbai and Rajasthan the circles with high reserve price not drawing any bids. Barring Bihar, bidders got spectrum in all circles at the reserve price.

The government will now have to think of ways of selling spectrum in circles where there were no takers. Would it lower the reserve price It already faces a similar problem with regard to the CDMA spectrum where even before the start of auctions, the only two bidders Videocon and Tata Teleservices pulled out citing high reserve price.

The industry was always skeptical about the success of the auctions because of the high reserve price of Rs 14,000 crore for 5 MHz spectrum. This, according to them, was not in sync with the current market demand for spectrum. In fact, Bharti Airtel chairman and managing director Sunil Mittal, while predicting the auctions would not be a success, had said his company had participated because it did not want to be seen as boycotting it.

On Wednesday, the Cellular Operators Association of India said the problem was in the execution of auctions rather than auctions as a process to sell spectrum. It said that it had continuously warned the government that the reserve price was too high and not in sync with market conditions. The Association of Unified Service Providers of India said if most circles had been won on reserve price, there was no market discovery and that it could be better called administrative pricing.

Only five operators - Bharti Airtel, Vodafone, Telenor, Videocon, and Idea Cellular participated in 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.