After two years: Telecom sector hopes auction will signal revival

Subhomoy Bhattacharjee Posted online: Monday, Feb 03, 2014 at 0000 hrs
New Delhi : Exactly two years after the Supreme Court had cancelled 122 licenses of 22 telecom operators, on Sunday another bench of the same court cleared the last hurdle for the government to hold spectrum auctions tomorrow.

At 9 am on Monday morning at the offices of each of the eight bidders as the connections with the auctioneer will light up on schedule, few officers will however have the time to reflect on the amazing coincidence as they pore over the price movements for each airwave on offer.

In a special hearing on Sunday the court refused a stay demanded by Bharti Airtel, Vodafone, Loop and Idea Cellular Ltd on the auctions even as it admitted their petitions.

This means the government offer to sell 253.8 Mhz in the 1800 band and 46 in the 900 band can finally go through. Sources in the government expect the auctions to raise more than Rs 40,000 crore which will make the fiscal deficit for FY 14 attainable.

On February 2, 2012 the Supreme Court decision had created a meltdown in the Indian telecom sector that also pulverised the Indian economy. It sent Sensex companies like Bharti into eight quarters of plunging top line, wiped out about half a million jobs from the sector and put government into three international arbitration cases with foreign investors in the sector like Sistema from Russia and Telenor from Norway making mincemeat of India’s growing reputation as a prime investment destination.

From being India’s best growth story the telecom sector also created a huge discomfiture for the UPA government, as one minister A Raja went to jail with the then telecom secretary and another was hauled up by the CBI for questioning; questions reached the Prime Minister’s Office too.

Irrespective of how Monday’s auction pans out, this then is a turnaround story. In its assessment India Ratings & Research has consequently revised its outlook on the sector to stable from negative for FY15. “This is based on a gradual revival of investor confidence on the back of emerging clarity on regulatory issues towards end-2013,” it notes.

The positive developments include a reduction in the spectrum base price, relaxation of M&A norms and raising of the FDI limits to 100 per cent. All of these have made the auctions something telecom operators are looking forward to, it says.

It was another auction in December 2010 that had plunged the sector into grief. The companies had bid massively to raise Rs 1,08,000 crore for the government, especially as the department of telecom had in the run up announced there will be no further auction for a long time.

The bid prices were used by government auditor, the CAG to presume that any spectrum sold earlier at lower prices was consequently a loss for the government. To preclude these happening this time again, the telecom department has already announced schedules for next auctions in FY15.

Rajat Kathuria, former Trai technical advisor and now chief executive Icrier says the government has learnt from the tumultuous experience of the last two years. “The outcome of these auctions will as much be a test of whether the telecom sector sees the new conditions such as lower reserve price, lower and uniform spectrum usage charge and spectrum trading possibilities as positive as much as it will be a test of whether the endeavour to exorcise the institutional demons of the past has been credible,” he says.

Telecom Regulatory Authority of India (Trai) has this time set the base price 47 per cent lower than the price discovered in the 2010 auctions. This has been welcomed by all the bidding companies.

Among the 22 telecom circles of the country, the 12 top circles will be bid for by all the eight companies in the fray unlike the 2010 auctions where every company bid for everything on offer.

The auction rules are also flexible this time to allow the winners to use the airwaves for any type of telecom service they want to provide like data or voice telephony.

Essentially, the auctions will further consolidate the presence of the market leaders. On November-end, 2013 the revenue market share of the top three telecom service providers had climbed to over 70 per cent from less than 64 per cent a year (Trai figures).

The number of telecom players which at its peak was 277 at the end of December 2012 had shrunk to 179 and the process is on.

TIMELINE:

* Feb 2, 2012: Supreme Court cancels 122

licenses of 22 operators

* Mar 5, 2012: Centre files review petition in SC to review spectrum allocation policy

* Apr, 2012: Trai orders on new spectrum reserve price is criticised by telcos

* Aug, 2012: Supreme Court extends deadline for auction to Jan, 2013

* Nov, 2012: No bidders for CDMA

* Dec, 2012: Sistema Shyam Teleservices asks DoT to protect its investment

* Mar 4, 2013: No applicants for spectrum auction in 1800 and 900 MHz

* Sept, 2013: Trai recommends drastic reduction in spectrum reserve prices

* Dec, 2013: Cabinet approves the formula. Date set for February 2014 auctions

Read: Supreme Court rejection of relief for telcos to fire up auctions starting today