Column : Sanity flows from 2G auction

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MK VENU: Nov 21 2012, 01:06 IST

The tepid response to the auction of 2G spectrum has many lessons for various actors linked to the telecom sector, including the Comptroller and Auditor General (CAG). One important message for the telecom companies is that auction does not always drive up costs, as has been propagated by the industry. This time around, the auctions actually helped in bringing some sanity to the sector bedevilled by all kinds of problems. The auction-discovered price led to a re-rating of major telecom companies, with big broking houses raising the future earnings potential of these companies as reflected in the increased target stock price of the dominant telcos. Not many new players rushed to bid for spectrum at the all-India level this time, thus limiting the possibility of further fragmentation of the telecom market.

Bharti Airtel CEO Sanjay Kapoor rightly observed that the current auction actually signals a phase of consolidation in the telecom sector, which in recent years witnessed a veritable race to the bottom with too many players trying to grow their subscriber base by reducing prices to rock-bottom levels. The economics of the telecom sector is such that the average return on capital is probably close to zero and the industry as a whole is reeling under a massive debt of over R1.85 lakh crore. Given this scenario, and the fact that the voice market is saturated at about 900 million subscribers, it was hardly a surprise that the auctions got the response they did.

To give you a comparative idea, in

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Reader's Comments (2)| Post a Comment

Humble opinion

R Ramanujam | 23-Nov-2012Reply | Forward

Sir, Having seen & heard you on TV channels, i have been impressed with the rational thinking that you bring to the table during the panel discussions. Reading this article, i get a feeling that there is a strong undertone of questioning the CAG's method of calculating the losses in the 2G auctions. I beg to differ with your viewpoint, considering the fact that there were 3 numbers provided by the CAG and all the 3 figures have been substantiated by the CAG himself deposing in front of PAC etc.....It is in my humble opinion that market forces are beyond the ambit of any meaningful calculation procedure, as we have seen that some of world's strongest economies have not been able to factor it appropriately. With all due respects, i request that media (both print & TV) moderate their questions on the functioning of CAG.....

what else does one expect from Mr.Venu?

Nandakumar | 23-Nov-2012Reply | Forward

He devotes 4/5th of his article to justify how 1.76 lakh crores was ,perhaps, not a reasonable figure. But if Mr.Venu wanted to give an exhaustive and objective analysis, he should have discussed what was a reasonable figure for the 122 licenses. I challenge him to use all his ' pink daily editorial expertise' to give a reassonable estimate of license fee for those 122 licenses at 2008 decmber rates, based on the then market demand and market expectations and let us know what is the multiplying factor of 9,700 crores rupees that GOI got then