2G auction ends with less than one-third of target met

New Delhi: Communications minister Kapil Sibal on Wednesday defended the government over the poor response to the first auction of 2G spectrum, saying it was bound by court directives and would have received more attractive bids if it had a free hand in policymaking.

add_main_imageSibal’s remarks came after the auction ended by raising less than one-third of the ₹ 30,000 crore it had been expected to garner. There were no takers for spectrum in Delhi and Mumbai, India’s biggest telecom markets. Telecom analysts blamed the disappointing response on the high base price.

The sale was necessitated by the 2 February Supreme Court decision to cancel the 122 permits allocated to nine companies that were given 2G spectrum and licences to operate in 22 telecom circles, or zones, on grounds that the process of allotment on a first-come-first-served basis was flawed.NextMAds

The court verdict followed a report by the Comptroller and Auditor General of India that the government had lost an estimated ₹ 1.76 trillion because of the allotment, rather than auction, of the radio waves.

“If we had gone by Trai recommendations, we would have got no bidders,” Sibal said, adding that the government needed a free hand in policymaking. The government should have got ₹ 1 trillion instead of less than ₹ 10,000 crore, the minister said. “We should allow market dynamics to play out,” he said.

The auction ended with the government receiving bids worth ₹ 9,407 crore for 1800MHz spectrum in 18 out of the 22 telecom areas that were on offer, after 14 rounds of bidding. This is one-fourth of the government’s original estimate of ₹ 40,000 crore, which was reduced to ₹ 30,000 crore, after the cancellation of the auction of spectrum for telecom companies operating on the code division multiple access technology platform.

The auction, in which only five of India’s 10 operators participated, earned a little more than the ₹ 9,000 crore that the government received as telecom fees under the allocation procedure followed in January 2008.

“The results of the auction clearly indicate that the reserve price was completely off the mark,” said Prashant Singhal, a senior telecom analyst associated with Ernst and Young Global, a consultancy. “The government’s plan of raising ₹ 40,000 crore has fallen flat... All in all, a big embarrassment for the Indian government, but one could see it coming, and a big disaster that could have been avoided by a more sensible reserve price.”sixthMAds

There were no bidders at the auction for spectrum in New Delhi, Mumbai, Karnataka and Rajasthan. Only Uttar Pradesh (West and East), Gujarat and Bihar saw bidders offering more than the base price because demand exceeded the airwaves available.

The government is likely to actually net around ₹ 6,000 crore from the winning bidders after adjusting the money paid by the telecom firms that were affected by the Supreme Court verdict. The targeted proceeds of the auction were meant to be used to meet the government’s ambitious fiscal deficit target of 5.3% of gross domestic product in the year to 31 March.

The Cellular Operators Association of India (Coai), the country’s primary global system for mobile communications technology-based operators’ lobby, termed the auction a failure.

The association said “an artificially high reserve price that bore no congruence to market realities was the key reason for the failure”.

“In spite of the industry consistently highlighting the many flaws in the assumptions and predicted outcomes, the government appeared bent on plunging ahead on these dubious grounds,” Coai said in a statement.

The government decided last month to allow the companies affected by the ruling to get refunds for the licence fee they had paid if there was no criminal liability found against them. This figure is likely to come down further to less than ₹ 2,000 crore if all the firms opt for paying in instalments.

Bharti Airtel Ltd won spectrum in one circle of Assam and will pay ₹ 8.67 crore. Vodafone India Ltd won spectrum in the largest number of circles—14—and will pay a total of ₹ 1,127.94 crore. Videocon Industries Ltd won spectrum in six circles and will pay ₹ 2,221.44 crore. Idea Cellular Ltd won back all the circles it lost due to the Supreme Court verdict and also picked up some top-up spectrum in Bihar for ₹ 2,031.31 crore.

Norway’s Telenor Group, which tied up with Sun Pharmaceutical Industries Ltd’s executive director Sudhir Valia to form a company called Telewings, won spectrum in six circles for a total bid of ₹ 4,018 crore. The company will exercise the option of paying in equated annual instalments for the 20-year validity of the spectrum.

Telewings won 5MHz of spectrum in Andhra Pradesh, Uttar Pradesh (East and West), Bihar, Gujarat and Maharashtra.

Telenor’s earlier India joint venture company with real estate firm Unitech Ltd saw all its licences cancelled and a protracted battle between the partners. The dispute ended earlier this year with Telenor forming the new venture.

“Today we have won spectrum in the six most populous circles in India. These are also the areas where we enjoy a strong position already, and where we see the highest potential for continued growth and profitability. All of these circles are about to deliver on the financial targets of becoming break-even in 2013,” said Sigve Brekke, head of Telenor Group’s Asian operations.

According to officials in the department of telecommunications (DoT), who requested anonymity, the auction dragged on for a day more than expected after the firms participating started bidding for the Bihar circle aggressively. All the six rounds of bidding on Wednesday were focused on the Bihar telecom zone.

The government auctioned eight blocks of 1.25MHz of spectrum in each of the nation’s 22 licence areas. The seventh round on Monday had ended with excess demand in the Bihar circle, leading to a rise in the price, according to DoT data.