NDTV Profit

Why the 2G auction flop augurs well for subscribers, telcos

Shares of mobile service providers surged on Thursday, a day after the 2G auction ended with the government getting bids worth Rs 9,400 crore against the targeted Rs 40,000 crore. Bharti Airtel jumped 4 per cent while Idea Cellular gained 3 per cent. Bharti acquired one block of top-up spectrum while Idea acquired spectrum in all the seven circles that it lost earlier. It also acquired one slot of spectrum in Bihar. The company paid Rs 2,030 crore or Rs 6 per share for the eight circles.
Here's why the poor response to the 2G auction is good news
  1. Tariffs may not rise much: Aggressive bidding in the auction would have driven spectrum prices higher leading to a sharp hike in mobile tariffs.

    "It’s (the unsuccessful auction) quite good from the perspective of consumers in India and the industry in general as industry operators would have likely become more debt laden with very high reserve prices and would have needed to increase tariffs for consumers, possibly by as much as 90 per cent for basic voice services," Mohammad Chowdhury, executive director & leader (telecom sector) at PricewaterhouseCoopers, told NDTV.
  2. Better returns for shareholders: The low prices paid will provide a respite to the debt-ridden telecom industry suffering from heavy loans taken to pay for the 3G mobile spectrum two years ago. Telcos had paid a total of Rs 66,000 crore for the 3G spectrum auction in 2010.
  3. Less competition, better quality: From January 2013, the mobile services market will shrink to just seven players with a nationwide presence from 15 carriers now. A fall in the number of players will also lead to lesser fight for profitability and the focus will shift from margins to quality of services provided to customers.
  4. Reserve price may be lowered: There were no bids for the Mumbai, Delhi, Karnataka and Rajasthan circles, which accounted for 51 per cent of the reserve price. The government may put these circles on the block again later, but may have to rework prices.

    "We believe an unsuccessful 2G auction shows that there is limited demand for spectrum at high prices. We believe the government will likely reduce the reserve price in circles where there was not even a single bid," Goldman Sachs said in a note today.
  5. More spectrum may be put on the block: The Supreme Court has pulled up the government for not following its February 2 order of auctioning the entire 2G spectrum made available after cancellation of 122 licences. The government has to file an affidavit by November 19 on why it is not implementing the Supreme Court's 2G order. If the government makes extra spectrum available, prices may come down further.

    "The amount of spectrum that has been made available for the industry in general is limited. There is a need for more spectrum in the industry particularly as data services pick up in the future," Mr Chowdhury of PricewaterhouseCoopers said.

    (With inputs from agencies)

ALSO READ US Retailer Cancels This Indian Firm's Contract, Shares Crash 36%