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Mobile Subscribers Yearwise comparision

2G spectrum auction concludes, Indian government gains Rs 94.07 billion

November 15, 2012

2G spectrum auction concludes, Indian go...
After two days of bidding, the 2G spectrum auction has concluded, leaving the government with Rs 94.07 billion, a quarter of its original target of Rs 400 billion. The government received bids for 98 of 176 spectrum blocks.

Commenting on the tepid performance, R. Chandrashekhar, secretary, Department of Telecommunications said, “We have sold only 42.37 per cent of the total airwaves that were put up for sale. The government will have to take some serious policy decisions, including whether the auctions should be re-run in these four circles with a lower reserve price.”

Only five operators, Bharti Airtel, Vodafone India, Norway's Telenor ASA, Videocon Telecommunications and Idea Cellular decided to participate in the auction. Reliance Communications, Aircel, Sistema Shyam Teleservices Limited, Tata Teleservices Limited (TTSL) and Infotel Broadband did not participate.

Net, net, Videocon Telecommunications and Telenor, which lost pan-India licences when the Supreme Court revoked the 122 controversial permits issued in 2008, won licences in six circles each. They pay Rs 22.22 billion and Rs 40.18 billion respectively. Telenor has emerged as the highest bidder in the auctions.

Idea Cellular which lost licences in seven circles has bought back the airwaves and has got one block of additional airwaves in Bihar. Incumbent operators Vodafone and Bharti Airtel have won additional airwaves in 14 and one circle respectively. Vodafone has paid Rs 11.28 billion for it.

In a public statement issued at the end of the auction, Vodafone India stated that its decision to participate in the 2G auction was to secure additional spectrum in many circles where it had not received any new 2G spectrum since 2008. Further, it said that the entire amount of spectrum that is currently unused (in the 800 MHz, 900 MHz and 1800 MHz bands) should be put on auction at the same time with a much lower reserve price. “The spectrum auction should be held simultaneously for all the service areas,” read the statement.

Meanwhile, the government has deferred the auction of 800 Mhz spectrum, as there are no takers for the same. Prior to this, TTSL and Videocon Telecommunications pulled back from bidding for 800 Mhz of specrum used to offer CDMA mobile services.  Given the shortage of spectrum in that band, the government had decided to auction 3 blocks 1.25 MHz each in 19 telecom circles.  The reserve price for each block of 800 MHz band was pegged at Rs 45.5 billion, (about 1.3 times of the price of frequencies in 1800 MHz band).

Industry analysts attribute the lackadaisical performance to the high reserve price of Rs 140 billion for pan-India spectrum, which is more than seven times what the operators paid in 2008. “The results of the auction clearly indicate that the reserve price was completely off the mark, with none of the interested operators pitching for the circles that they had committed to participate. The government's plan of Rs 400 billion has fallen flat and they would now need to go back on the drawing board with respect to 800 MHz spectrum, the Delhi, Mumbai and Karnataka circles and 1800 MHz of spectrum to determine the market driven price. All in all, the spectrum auction was a big embarrassment for the Indian government, but one could see it coming, and it could have been avoided by a more sensible reserve price,” feels Prashant Singhal, partner, Ernst & Young Global.

Rajan S. Mathews, director general, Cellular Operators Association of India (COAI), echoes Singhal’s view. “The 2G auctions have ended on a flat note, and COAI observes that the results have been exactly what the industry had predicted. We had maintained that the reserve price was guaranteed to have a detrimental impact on the auction. The second factor is that the majority of the bidders are actually operators who have lost their licenses and are compelled to participate in the auctions despite the high prices and the limited availability. Finally, the limiting of spectrum available for auction, added to the sense of uncertainty. The artificial scarcity created by holding back spectrum, combined with the high reserve price, dampened any enthusiasm for aggressive bidding by the operators. In fact, only about 35 per cent of the total spectrum (only 27 per cent in terms of reserve price) put up for auction was actually bid for,” he comments.

Now, industry analysts say that the government’s plans of imposing a one-time fee on excessive spectrum may be upset, as operators did not bid for spectrum in key circles. The one-time fee was slated to bring in Rs 250 billion to the exchequer.  But in this context, determining the market price for calculating the one-time fee will not be possible.

Analysts note that with no market discovered price, the government’s options are limited to either lowering the base price in circles like Mumbai, Delhi, Karnataka and Rajasthan or holding another bid. However, as analysts point out these options can be fraught with legal challenges from companies which have participated in the current sale process.

Telecom analysts also point out that the government’s decision to refund the license fees paid by operators who lost their licences in 2008 may actually result in no net gain to the exchequer. As per DoT guidelines, only 33 percent of the bid amount needs to be paid to the government in the first year. That means the government is looking at earning only Rs 31 billion this fiscal. The rest it will collect subsequently over 13 years in 10 equal installments. Against this the government will have to refund Rs 43 billion to operators for the entry fee they paid in 2008.

 

 

 

 
 

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