Centre may fix 2G auction price at Rs 12,000 cr

With the country’s Supreme Court cancelling all 122 second generation (2G) licences granted to eight telecom companies in 2008, the Department of Telecom (Dot) in consultation with Telecom Regulatory Authority of India (Trai), will soon announce the reserve price for auction of 2G spectrum.

A senior DoT official told Deccan Herald that the government is likely to keep the reserve price at around Rs 12,000 crore for a pan-India 6.2 Mhz license, thus pricing each Mhz at Rs 1,935 crore. This price is slightly higher than Rs 10,792 crore recommended by Trai in November 2011 but lower than the highest pan-India bid price for 3G at Rs 16,749 crore in May 2010.

At Rs 12,000 crore, the new auction price will be a whopping 7 times higher than Rs 1,651 crore companies paid in 2008, but the reasons for fixing such a high price are many, said the DoT official.
One of the main reasons is that, given the possible ramifications of the 2G scam, the government does not want to take any risk in being shown as favouring business houses with realistic but lower prices. The other reason is that the collection from 2G auction will also help resource-strapped government fill up its coffers to some extent.

Spectrum glut

But the ultimate price of 2G spectrum, like all products, will be determined by the forces of supply and demand. And right now there seems to be a glut in spectrum in relation to low demand for it. According to Trai sources, the cancellation of 2 G licenses will free up 450 Mhz of spectrum and add to it another 211 Mhz already available in the system, the country has 2G spectrum close to 700 Mhz.

The demand for spectrum, on the other hand, is expected to be tepid because as much as 270 Mhz or 60 per cent from the allotted 450 Mhz in 2008 remained either unutilised or underutilised even after four years.

These are held by non-serious telecom companies like Videocon, Loop, Etisalat DB and STel who are yet to roll out their telecom network in a meaningful way even after four years. These companies, market observers believe, are unlikely to bid in auction and will be happy to get their license fee back from the government.

Serious players

Even the serious players like Uninor (a JV of Norway’s Telenor and Unitech) and Sistema Shyam (a JV between Russia’s Sistema and Shyam Telecom are unlikely to pay seven times the original price to regain lost spectrum. Having sunk close to Rs 14,000 crore, Telenor, for example, is already stretched for cash. Besides, the industry is bleeding due to cut-throat competition among players. For the same reason no new player is expected to enter the fray.

The DoT official also said that to keep interest high, Trai is expected to keep the auction open for all, including older players though Telenor wants it to be limited only to those whose licenses were cancelled. Even an open auction is unlikely to support a high reserve price of Rs 12,000 crore as incumbent players, Airtel, Vodafone, Idea, Reliance, Tata Teleservices, who among themselves have 86 per cent of the country’s telecom market, are not in a hurry to garner spectrum. First of all, most of them are sitting on a huge pile of free 2G spectrum. They have also paid heavily for 3G spectrum which they are yet to utilise in a commercially viable way.

The government won’t be much worried if there are no takers for auctions because it will support its point that CAG’s estimate of Rs 1.76 lakh crore loss to the exchequer due to 2G scam is based on faulty assumptions as the real market price would be much lower.