The auction of second-generation (2G) GSM spectrum ended yesterday, fetching the government just Rs. 9,407 crore, a fraction of the Rs. 40,000 crore in revenue that the government had hoped to get from the exercise. The 3G auction in 2010 had got the government Rs. 66,000 crore.
Global investment bank Morgan Stanely said, “(The) bidding is a tad higher than our expectation…high reserve prices essentially led to no bids.”
The auction, organised on the orders of the Supreme Court, got a very poor response and ended after 15 rounds on the second day of bidding.
“We should have ideally got Rs. 1 lakh crore, but we got Rs. 9,407 crore (from 101 blocks),” Telecom Minister Kapil Sibal said. “But this how the market situation is.”
The government may ask for the fees in deferred payments or in one go.
Of the five telcos that bid, Videocon won four blocks (5MHz) each in six circles and Idea won four blocks (5MHz) each in the seven circles, while Telenor got spectrum in six. Vodafone secured spectrum in as many as 14 circles, which included Uttar Pradesh (East) and Uttar Pradesh (West). Bharti Airtel Ltd won spectrum in only one circle - Assam (1.25MHz). All 22 telecom circles in the country were put on the block in the auction that began on Monday. Nearly half of the blocks remained unsold at the end of the auction.
The government should also follow TRAI’s advice to abandon staggered spectrum usage fees which are higher for operators who require more spectrum, Vodafone said in a press release. All operators should be allowed to bid for all spectrum to ensure a level playing field, the telco added.
In a statement, Telenor Group said that “that the company has been successful in securing spectrum license to provide mobile telephony services in six telecom circles in India. Telenor's total bid in the spectrum auction was Rs. 4,018 crore, of which 33 per cent is to be paid up front”. The rest will be paid in 10 equal instalments between 2015 and 2024, the release added. (Read here)
Two key circles—Delhi and Mumbai—had no bidders; neither did Karnataka and Rajasthan. The government may put these circles on auction again later, but may have to rework prices.
No telco applied for an all-India licence, saying the government's base price of Rs. 14,000 crore for 5 MHz of GSM airwaves in all the 22 telecom zones was too high. This is more than seven times what companies paid in the 2008 grant process. The Telecom Ministry had planned to hold two separate auctions for airwaves used by GSM and CDMA (Code Division Multiple Access)-based mobile phone carriers. But the CDMA auction had to be cancelled after both bidders—Videocon and Tata Teleservices—pulled out.
The Cellular Operators Association of India (COAI) – the representative body for private cellular operators – said the poor response to the 2G auction was a result of flawed execution by the government. In a statement issued after the auction ended today, the COAI said: “All along, the COAI has maintained that the reserve price was guaranteed to have a detrimental impact on the auction… the auctions have concluded on the exact note as predicted.”
Of the 290 megahertz of GSM spectrum put on auction, only 55 per cent was bid for, the Department of Telecommunications sources said. In 2008, then Telecom Minister A. Raja had given out about 414 MHz of GSM spectrum for about Rs. 9,500 crore. This auction was organised after the Supreme Court, in February this year, cancelled the 122 telecom licences allotted by Mr Raja, who is accused of masterminding the 2G scam.
At the end of the first day of the bidding, the government had received bids worth Rs. 9,224.75 crore. The provisional winning price in 17 of the 22 circles up for auction that day was the same as the base price set by the government, i.e. Rs. 14,000 crore. The only exception was in Bihar, where the provisional winning price increased by Rs. 1.7 crore over the reserve price.
Even before the disastrous first day of auction began, analysts had predicted that the government could not hope to mop up more than Rs. 20,000 crore. Airtel's Sunil Bharti Mittal said that the base price was too high and that he expected the auction to be over the first day itself. The industry has also attributed the tepid response to the government's decision not to auction the entire spectrum made available after the cancellation of the 122 licences.
Earlier this month, the Supreme Court pulled up the Union government and asked it to explain why it was not auctioning the entire spectrum that was made available after the cancellation of licences. The government has to give its response in court next week.
New players and telecom companies affected by the Supreme Court verdict had to win at least four blocks to start or continue their operations.
This means that Idea Cellular, Videocon and Telenor need to win at least 5 MHz of spectrum, divided in blocks of 1.25 MHz each, to continue their services in areas where their licences were cancelled.
However, existing players whose licences were not affected by the Supreme Court order, can bid for two blocks. These players are Airtel, Vodafone, and Idea Cellular (only some licences of Idea were cancelled, while it retained some).
On Thursday, a day after the auction ended, Bharti Airtel was the top gainer on the stock markets. The stock traded 4 per cent higher at Rs. 294.50 at 09.15 a.m. Goldman Sachs has said unsuccessful auction is a positive for telcos, particularly incumbents. Idea Cellular also saw strong buying interest. The stock was up nearly 3 per cent.
With inputs from PTI