The auction for 2G spectrum starts on Monday with five companies in the fray. Bharti Airtel, Idea Cellular, Vodafone India, Telenor and Videocon have expressed interest for various circles.
The Government is expecting at least Rs 14,000 crore from these auctions, but given the low level of interest it is unlikely to achieve the target. Bharti Airtel’s Chairman and Managing Director Sunil Bharti Mittal said last week that the auction could get over in a day or two unlike the auction for 3G and broadband spectrum held in 2010 that lasted for nearly a month.
The main reason for the low interest is the high base price fixed by the Government.
None of the players has applied for pan-India spectrum. Bidders may even give key areas such as Delhi and Mumbai a miss due to the steep base price.
The auction is being held after the Supreme Court cancelled all licences issued on or after January 10, 2008. But barring Telenor and Videocon, none of the other players whose licences were cancelled is participating in this auction.
It will be interesting to see how many circles Norway's Telenor will be able to retain out of its existing nine circles. Videocon’s strategy will also be keenly watched as it is widely believed that this company will be acquired by Reliance Industries after the auctions.
Reliance had followed a similar strategy at the broadband spectrum auction in 2010 when it bought out Infotel Broadband after it won pan-India spectrum.
Wide implications
The outcome of the auction has wide ramifications for the incumbent operators and the Government. For the Government, this auction will set the pace for future spectrum allocation. A flop show will force it to rethink its current policies. The revenue generated from the auction is also vital for bridging the fiscal deficit; therefore, muted bidding will not be good news for the exchequer.
On the other hand, the incumbent players would want the bidding to get over in the first round itself because the final bid price will be used to extrapolate the one-time fee they have to pay for the excess spectrum above 4.4 MHz which they already own.
Low bid amount would keep the one-time fee also low. The auction price also has a bearing on licence renewal and spectrum re-farming in 2014 for the incumbent operators.
Therefore, if the auction turns out to be a damp squib then the Government will have to explain why it kept a high reserve price and why it did not put all spectrum available.
The Supreme Court last week had indicated its displeasure at the Government’s decision to hold back spectrum.
The court had earlier asked the Government to auction the spectrum that gets freed up after cancelling the 122 licences.
But only a small portion of this has been put on the block creating an artificial scarcity.