2G spectrum auction wont bring any revenue windfall for govt

Written by Rishi Raj | Anandita Singh Mankotia | New Delhi | Updated: Feb 6 2012, 05:52am hrs
The Supreme Courts cancellation of 122 tainted 2G telecom licences will create a situation where the supply of spectrum will be much higher than demand. This means whenever spectrum is auctioned, there is little chance that the government will get any windfall gain like in 3G auctions.

The cancellation frees around 540 MHz of 2G spectrum. The government can get another 439.6 MHz vacated by defence forces, adding up to a total of 979.6 MHz available spectrum. However, the total demand as per applications pending before the department of telecommunications as on September, 2011 is just 616.2 MHz. This includes demand by incumbents like Bharti Airtel and Vodafone besides new operators like Uninor, Etisalat and Videocon whose licences are up for cancellation.

The actual demand will be even less since the 616 MHz figure includes new operators demand for 4.4 MHz start-up spectrum and additional 1.8 MHz in some circles. All new operators are unlikely to participate in auctions, since many have indicated their willingness to exit if an exit policy is announced. The new telecom policy talks of an exit policy and the Trai has issued a consultation paper in this regard.

Some analysts maintain that a high reserve price may ensure revenue gains, but most disagree.

The reason is, the reserve price must take into account the demand-supply mismatch. When the supply is far more than demand, an abnormally high reserve price will not work.

Since 2007-08 when 2G spectrum was allotted, the sector has seen a loss of lustre, with the market capitalisation of top three operators Bharti Airtel, Reliance Communications and Idea Cellular

nosediving. With 3G debt still on their books and the decline in profitability in the last year and a half, chances of any sort of bidding war are remote.

Once the new telecom policy is in place by the middle of this year, operators will be allowed to share spectrum. This will enable operators with more spectrum than they need to lease it to those in deficit. Bigger operators like Bharti, Vodafone, RCom and Idea also have 3G spectrum in circles ranging from 8-13, which can always be used to accommodate more subscribers.

Thus, analysts and officials are convinced that there will not be any mad scramble for spectrum and therefore, the government should not expect any windfall gains from the auctions.