Telecom's damp squib

Last Updated: Thu, Nov 15, 2012 19:40 hrs

The unfortunate part of the lacklustre auction of telecom spectrum is that India appears no closer to a real solution to the question of spectrum pricing. Five telecom companies participated in the auction, which was completed after 14 rounds of bidding in two days. The industry has been quick to complain that the reserve price of Rs 14,000 crore (for 5 MHz) for a pan-India licence fixed by the government was too high and that was what kept the bidders away. But it is also true that telecom has seen a rapid decline in its fortunes in recent years. Tariffs have fallen to the lowest anywhere in the world; profits, as a result, are on the decline. A pile-up of debt is strangling the sector. Telecom is not the pot of gold it was in 2008, when business leaders jostled each other to grab spectrum, or 2010, when companies paid Rs 67,000 crore for spectrum to host third-generation, or 3G, telecom services. So the debate as to whether the reserve price was too high or not is unlikely to be settled easily.

Companies hope that the tepid response to the auction will make the government cut prices in the next round which, Telecom Minister Kapil Sibal has said, will take place in this financial year — that is, before April 1, 2013. But that is likely to lead to another set of problems. Those who have bought spectrum in the just-concluded auction could contest any reduction in the reserve price. What has changed in a matter of months, they are likely to argue, making the government reduce the reserve price? Litigation, with charges of favouritism thrown in, is certain to follow. Also, the price discovered in the auction was to become the basis for one-time fees from incumbent telecom operators for spectrum they hold beyond 4.4 MHz. But in four circles – Delhi, Mumbai, Karnataka and Rajasthan – there were no bids. In other words, the government doesn’t have a formula to charge incumbents one-time fees in these large circles, which together accounted for more than 40 per cent of the reserve price set by the government for a pan-India licence.

The bids of Rs 9,407 crore in the two-day auction are way short of the Rs 30,000 crore the government had hoped to collect. (The target in this year’s Budget was Rs 40,000 crore.) Even this amount is unlikely to be received because the bidders have the option to pay only a third of the money upfront; the rest can be paid in instalments over 10 years, though with nine per cent interest. Unless the bidders find the interest burden too high, they are unlikely to pay everything right away.

Thus, what the government is likely to get is Rs 3,136 crore — a little over 10 per cent of the target. And even getting this money will be hard, because three bidders – Idea Cellular, Telenor and Videocon – may have to be given credit for the spectrum they had bought in 2008, but lost after the Supreme Court cancelled licences given out that year. That credit works out to over Rs 4,300 crore. An unfortunate and distressing outcome of all this is that the low bids have now given the government a way to continue its cold war with the Comptroller and Auditor General, which had said the exchequer lost up to Rs 1.76 lakh crore in the allocation of spectrum in 2008. That apart, the spectrum imbroglio remains unresolved.

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