New Delhi: In a surprise development, only six operators submitted applications to participate in the forthcoming auction for spectrum in the 1800 megahertz or MHz (GSM) and 800MHz (CDMA) bands by the Friday deadline.
Unexpectedly, Reliance Industries Ltd, Reliance Communications Ltd and Russia-based Sistema-promoted Sistema Shyam TeleServices Ltd (SSTL) didn’t apply to participate in the auction.
As a result, the auctions are unlikely to see cut-throat bidding and runaway pricing as happened in the 2010 auction of 3G spectrum.
The below-par interest shown by potential bidders signals the onset of consolidation as telecom operators gear up for a more competitive market without the margins that were available earlier.
According to department of telecommunications officials as well as executives from the various companies, who requested anonymity due to the sensitivity of the issue, for 1800MHz spectrum, among the existing operators, Bharti Airtel Ltd has applied in five C category circles (rural circles); Vodafone India Ltd has applied in 17 circles; and Idea Cellular Ltd in the nine circles where it lost its licences due to the 2 February verdict of the Supreme Court.
Among the new operators, Telenor ASA has applied in the name of Telewings Communication Services Pvt. Ltd, a fully owned subsidiary, and the Dhoot family-promoted Videocon Group has applied for 15 circles in the GSM category and 10 circles in the CDMA category.
No new overseas company has applied for participation in the auction.
Tata Teleservices Ltd has applied for the CDMA auction in three circles, including Assam, the North-East and Jammu and Kashmir, where its licences were cancelled due to the Supreme Court verdict.
“Since there are only two operators in the CDMA auction, it is unlikely that there will be any bidding,” a senior official said. This would mean that Tata Teleservices would end up paying approximately Rs.62 crore after adjusting for the Rs.9 crore paid for the circles for which licences were cancelled.
Confirming its participation in the auction through group company Telewings Communication, Telenor said in a statement that “a final decision on whether or not to participate will be made before the auction starts”.
“Telenor Group continues its efforts to secure a new Indian partner and to obtain all necessary approvals to transfer Uninor assets into the new company,” the statement added.
In a statement on deciding against participating, SSTL brought attention to the curative petition it has filed in the Supreme Court against the February ruling. “SSTL was the only operator to have applied for pan-India CDMA spectrum in 2008. There is no finding or suggestion by the CAG (Comptroller and Auditor General of India) report that CDMA spectrum was equally or anywhere near in demand as GSM. SSTL believes it has a strong case and is determined to await its hearing,” the statement said.
“In this context, and considering the level of recommended spectrum prices, which makes the business case unviable, SSTL had no choice other than not to take part in the 2G auctions for 800MHz. SSTL would like to once again reiterate that it is hopeful that the highest court of the land will speedily look into the merits of its case and will give it justice,” the statement added.
The lack of interest in the auction has led many analysts to believe that the sector as a whole is headed for a consolidation of sorts in the next three-five years, with revenue and profitability of the utmost importance and subscriber additions losing all importance, as the case has been for a long time now.
“There is bound to be a consolidation of sorts driven by the mergers and acquisitions policy,” saidPrashant Singhal, a telecom expert with a partner company of audit and consulting firm Ernst and Young. He also added that while the number of operators would drop significantly, the lack of participation in the auction showed that the reserve price was extraordinarily high.
“Adding the eGoM’s (empowered group of ministers) decisions on one-time fee has put a lot of stress on the older operators,” Singhal said.
“There may be a few rounds of auction in the C category circles, but most of the metro, A category and B category circles will likely go at the reserve price,” he added.
Telecom analysts with investment banking firms based in Mumbai also said that some of the participation was done keeping in mind longer-term plans, given that the spectrum auctions to come in the 900MHz band among others were also very high priced.
“Vodafonehas likely applied to bid in as many as 17 circles in order to get liberalized spectrum and offer 4G services for which they could not win spectrum in the 2010 auction,” one expert said, requesting anonymity.
The spectrum being auctioned has been tagged as liberalized spectrum by the government, thereby allowing operators to offer any technology on it. Spectrum in the 1800MHz band has been recognized as usable for offering 4G technology-based high-speed wireless data services such as LTE (long term evolution).
The auction for spectrum in the 1800MHz band is expected to begin on 12 November. Two days after it concludes, the auction for 800MHz spectrum will begin.
The spectrum auction is a consequence of the 2 February Supreme Court ruling that cancelled 122 telecom licences and spectrum allotted to nine companies. The court had ordered the spectrum be auctioned by the government. The cabinet decided on a reserve price of Rs.14,000 crore for 5MHz of 1800MHz band spectrum and Rs.18,200 crore for start-up CDMA spectrum.