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The company last week said it was shutting operations in 10 circles across the country to focus on building its brand and shoring up revenues prior to the auction. Photo: Satish Kaushik/Mint (Satish Kaushik/Mint)
The company last week said it was shutting operations in 10 circles across the country to focus on building its brand and shoring up revenues prior to the auction. Photo: Satish Kaushik/Mint
(Satish Kaushik/Mint)

2G spectrum auction fails before it begins

Only one telecom firm applies to participate, likely delaying sale and potentially upsetting budget calculations

New Delhi:

In a setback to the government ahead of the budget presentation on Thursday, only one phone company has applied for participation in the auction of second-generation (2G) spectrum, likely delaying the sale beyond its expected start date of 11 March and potentially upsetting budget calculations.

Sistema Shyam TeleServices Ltd (SSTL), a joint venture between Sistema JSFC of Russia and Shyam Teleservices Pvt. Ltd, was the only company that sought to take part in the auction before the deadline for submitting applications for participation in the sale lapsed on Monday, said a senior department of telecommunications (DoT) official on condition of anonymity.

The government had been looking to auction spectrum in the 900 megahertz (MHz) band in Delhi, Mumbai and Kolkata where the older operators’ licences are coming up for extension or renewal; in the 1800MHz band in Delhi, Mumbai, Rajasthan and Karnataka where no bids were received in the November auction; and in the 800MHz band across the country, the sale of which had to be cancelled in November due to the lack of bidders.

The next move of the government will likely be decided next week.

“The cabinet will decide on the next steps," the DoT official said, adding that the government may try and auction the spectrum along with the 1800MHz spectrum (later in March) as part of a third auction.

The third auction, ordered by the Supreme Court earlier this month, would put on the block spectrum that the government did not offer for sale in November. DoT had reserved some of the spectrum for older operators as additional airwaves, but the court said the government had to auction all the spectrum cancelled last year as a result of its 2 February 2012 order.

Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd were expected to participate in the 900MHz spectrum auction because their telecom licences are due to expire in around 18 months.

Their decision to not participate in the sale comes after the Delhi high court on Monday asked DoT to look into the applications of Bharti and Vodafone for the extension of licences while declining to stay the auction of the 900MHz spectrum for the Delhi, Mumbai and Kolkata telecom circles.

The older telcos will see their telecom licences expire in these circles in late 2014. DoT has until 7 March to take a call on the issue, after which the telcos are free to go back to the court if they are still not satisfied, a senior executive with the regulatory division of one of the older telcos said on condition of anonymity.

Bharti and Vodafone approached the Delhi high court against the government’s plans to auction the 900MHz spectrum last week. The older operators’ telecom networks are heavily dependent on the 900MHz spectrum. Their case is based on clause 4.1 of the licence agreements they signed with DoT, which says that on expiry, the licences will be extended on mutually agreed terms and not renewed, which the government says is the current policy.

“They have a very strong case. They will fight it out. But the fact that they have not applied is a sign that the government needs to do something about the environment as a whole," said a Mumbai-based telecom analyst working with a multinational investment firm. “The telcos have lost faith in the government, especially after the reserve price for the spectrum was set so high."

“The fact is the government needs to ease the merger norms and concern itself less with making money from the sector and more on smoother operations. If operations are smooth, then revenue will anyway come," the analyst said on condition of anonymity.

The government had expected to raise 40,000 crore from the March auction. This estimate is likely to come down to around 3,000 crore after SSTL pays for the spectrum it has applied for, due to the lack of competing bidders.

SSTL will likely have to pay only the reserve price. The government had reduced the reserve price of the spectrum that was not bid for prior to the March auction in order to ensure the sale goes through. The move has not ostensibly worked.

The March auction, being termed a failure even before it has begun, follows the failed November auction that saw the government raise only one-third or around 10,000 crore from the sale of airwaves in the 1800MHz band. The November auction also saw the cancellation of 800MHz spectrum sale after the only applicants, Tata Teleservices Ltd and Videocon Industries Ltd, withdrew their applications.

The auctions are the consequence of the February 2012 Supreme Court verdict that cancelled 122 telecom licences and spectrum allocated to nine companies in January 2008, on grounds that the method of allocation was flawed. A clarification last week by the court said the government had to auction all the spectrum, which DoT has said it will do after the March auction. The notice inviting applications is expected later this week.

SSTL has likely applied for spectrum in at least 11 circles across the country. However, some analysts believe SSTL has grounds to withdraw its application as the lack of competition in the auction will likely force the government to further cut the reserve price. “Why will they participate if there is a chance that the spectrum price is reduced further," the analyst said.

SSTL last week said it was shutting operations in 10 circles across the country to focus on building its brand and shoring up revenue prior to the auction. The company saw 21 of its 22 licences get cancelled because of the February 2012 Supreme Court judgement.

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