Vodafone CEO Arun Sarin’s comment at Barcelona on Tuesday — that he would buy spectrum from the market if he doesn’t get it from the government — is telling. It reflects the precise problem that industry observers, including Mint, have been pointing out for months: That the allocation mess which telecom minister A. Raja chose to create in the 2G mobile spectrum space will only lead to a secondary market in spectrum at a huge loss to the exchequer.
Had Raja adopted the auction route, the premium that serious players would have willingly paid for spectrum would have gone to the government. Instead, the rather manoeuvrable queuing process brought in scores of applications, including many from not-so-serious aspirants. Because either way it is a lucrative proposition — spectrum awardees can expand/launch services in the fast growing mobile market; or profit from the market price for spectrum.
If, as Sarin said, Vodafone’s targets are the new awardees of letters of intent (LoI) which have not yet launched cellular services, it will be able to acquire spectrum. As mentioned in our 17 January editorial, deals were being discussed among some private players weeks ago. This is because most of the LoI awardees don’t have the financial muscle and it makes business sense for them to sell out. They would have jumped into the queue on smelling precisely such an opportunity.
The possibility was factored in by telecom regulator Trai, which is why it had recommended that M&As shouldn’t be allowed till an awardee fully rolled out its services. Yet, the ministry (minister, rather) chose to be silent on this front. Therefore, the likelihood of a significant boost to competition in the pan-Indian market is low. The very purpose of opening up the market in the manner seen so far will thus be self-defeating.
Ironically, while Bharti Airtel had offered to pay more, suggesting an auction, the ministry insisted that auctions were against level playing fields. Despite much protesting by industry watchers against his ad hocism, the government seems little inclined to tread on Raja’s turf. A few questions asked, a few comments on the need for transparency, that’s all. Ironically again, in a 29 January note, his ministry told its finance counterpart that with spectrum availability unclear, an auction was “neither feasible nor would it fetch the real value”. Can the latter ignore that the LoI route doesn’t answer well on either counts?
The January note also said an auction design would take at least six months. But we know now that the defence sector can’t vacate spectrum till June at least. A time frame for allotting spectrum is nowhere in sight. Would the finance minister like to take a radical call or is the coalition politics too tough?
Can spectrum still be rationally allotted? Write to us at firstname.lastname@example.org