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Government and industry at loggerheads on who is to blame for the failure

The 2G spectrum auctions ended flat on Wednesday with nearly half the spectrum seeing no bids and the government winning revenues of only Rs. 9,407.64 crore, instead of the Rs. 40,000 crore revenue target.

Idea and Videocon won spectrum in 7 telecom circles, Telenor in 6 and Airtel and Vodafone in 1 circle each. Telenor which won spectrum in 6 circles, paid a total of Rs. 4,018 crore, of which 33% has to be paid up-front. The rest is to be paid in ten equal instalments from 2015 to 2024.

However, the downside is that Delhi, Mumbai, Karnataka and Rajasthan did not receive any bids at all. Additionally, there were no pan-India bidders for spectrum, which was pegged at Rs. 14,000 crore by the Cabinet, after it reduced the reserve price of Rs. 18,000 crore recommended by TRAI. Of the 290 MHz of GSM spectrum put on auction, only half received bids according to DoT sources.

Sibal defends government

Defending the dismal outcome of the auctions, Telecom Minister Kapil Sibal said: “The nature of the market was different in 2008, it was different in 2010 and is different in 2012.” In 2008, former Telecom Minister A. Raja had given out 122 licences. In 2010, 3G spectrum along with BWA had been auctioned and fetched the government over Rs. 1 lakh crore.

“As long as the government is given a free hand in the larger national interest to move forward — the government would love to move forward, but sometimes it so happens that we are not given a free hand and therefore we land ourselves in this situation,” Mr. Sibal added.

Against eight blocks, except the top up blocks the government received Rs. 8,977 crore. The bid against top up blocks amounts to Rs. 430 crore, Mr. Sibal said.

Industry blames high reserve price

Blaming flawed executive action as the reason for the poor outcome, Rajan Mathews, Secretary General, Cellular Operators Association of India (COAI) said, “The government had decided the amount of spectrum that had to be put up for auctions. I don’t believe that was specified by the courts. The reserve price was not something that the Supreme Court specified — that is something that the government accepted in terms of its deliberations.”

Leading jurist, Harish Salve, who has been deeply involved in the 2G litigation, also slammed the government. He said, “From the legal point of view they have very few options left. The government repeatedly painted itself into a corner.” In a statement that pointed to the government’s weak defence in Supreme Court, he said, “The government almost did not defend the 122 licences in court.”

The COAI, whose members primarily led the bidding said, “The results have been exactly what the industry had predicted. All along, the COAI has maintained that the reserve price was guaranteed to have a detrimental effect on auctions. That it would ensure that there were limited players coming into the market to bid and had also indicated that there would be extremely muted bidding, and for several circles there would be no bidders at all.”

“The root of problem lies with the procedure adopted by the government in executing the auctions. The COAI is in agreement with Supreme Court that auction is the best and the most transparent way to determine the allocation and market price of a resource as rare as spectrum for commercial use,” the COAI said in a statement.

Revenue doubtful this fiscal

In addition to the dismal performance, it is also likely that the government will not receive any of the Rs. 9,477.64 crore provisional revenue from the auctions in the current fiscal.

An analyst said that since only 33% of the bid amount has to be paid upfront, only Rs. 3,190 crore would be due in the current fiscal. However there are three operators whose cancelled license fee was adjusted against the earnest money deposited for the auctions. Idea’s Rs.1,000 crore, and Videocon and Telenor (earlier Uninor) Rs. 1,658 crore each. This itself totals to Rs. 4,300 crore. Using this as the moratorium of the payment, it is unlikely that any payment will come through during the current fiscal — unless of course some companies decide to pay upfront to save upon the 9% interest which under the current circumstances and prevailing market conditions remains unlikely.

Government to rethink strategy

Admitting that the market response was visibly muted, a DoT official told The Hindu that while bids in 18 of 22 telecom circles on the face of it, qualified for a 80% demand level, in reality, in terms of value, the impact was far more serious since the four circles for which there were no bids account for over 50% of the pan-India Rs. 14,000 crore reserve price. “Even in those 18 circles, where bids were received, only 69.44% of the spectrum has been sold,” he said.

“The issues that have to be tackled within the next few weeks by first the DoT and then the EGoM, pertain to the unsold spectrum in four circles, CDMA spectrum, spectrum in the 900 MHz band, for which the TRAI has fixed a reserve price that is double that of the Rs. 18,000 crore that it had fixed for the 1800 MHz band, as well as the unsold spectrum in the 1800 MHz band,” the official said.