20.11.12

2G Auction update



The government’s plan to rake in Rs 40,000 crore from the sale of spectrum for 2G mobile services suffered a major blow, with the sale process generating a disappointing Rs 9,400 crore with no takers for key circles including Delhi, Mumbai, Karnataka and Rajasthan.
The lack of enthusiasm in times marked by a slowing economy and stressed balance sheets was widespread.
Only 96 bids of 1.25 mega hertz each came for 144 blocks which were with new operators —Telenor, Videocon and Idea — resulting in two-thirds of the spectrum being lapped up by players whose licences are to be cancelled following a Supreme Court order. Only 42% blocks sold in two days
The 2G auction was far worse with regard to another 60 blocks with Bharti and Vodafone being the only bidders as the others dropped out citing high reserve price, resulting in bids for only six blocks of top-up spectrum.
In all, only 42% of the blocks could be sold in the auction that lasted two days. Besides playing havoc with the fiscal arithmetic of the government, the outcome was a stark statement of an economy losing steam and a once celebrated sector plunging into uncertainty.
Telecom companies had maintained that the reserve price of Rs 14,000 crore for GSM operators looking for 5 mega hertz of pan-India spectrum was too high. The government had defended the reserve price worked out by a ministerial panel and endorsed by the Cabinet. However, on Wednesday, telecom minister Kapil Sibal told reporters that the government went by the Telecom Regulatory Authority of India’s recommendations, which had pegged the reserve price at Rs 18,000 crore for 5 Mhz spectrum across the country.
The auction-determined base price also falls way short of the Comptroller & Auditor General’s estimate of a revenue loss of Rs 1.76 lakh crore. Sibal, however, refused to comment.
While some in the government said that the poor returns validated the controversial “zero loss” argument, this was taken as gallows humour and could not conceal the all pervasive despair in the government which is seriously concerned about India’s sovereign rating slipping into junk grade depths.
At a time when the government has been forced to cut down on expenditure and warn the ruling party of the dire consequences of a runaway subsidy bill, numbers coming out of the auction will send the government back to the drawing board.


The finance ministry was banking on the airwaves to bridge the ever-widening fiscal gap. After the government decided to charge existing operators for “excess spectrum” it was hoping that even Rs 15,000 crore would help it sail through. The outcome turned out to be worse than even the worst case scenario.
There could be a bigger disappointment in store. These numbers would lower the excess spectrum mop up also from the expected level of Rs 25,000 crore as a part of it was going to be linked to the “market-discovered price”. Even the entire Rs 9,400 crore may not come into the government kitty during the current financial year given that operators have the option to pay in installments. Plus a part of the revenue will be set off against what players such as Idea and Videocon, which are not facing criminal proceedings, had paid when licences were controversially awarded in 2008.
Speaking on the condition of anonymity, government sources laid the blame at the doorstep of the Supreme Court’s insistence on speeding up the auction of the 122 licences that it had scrapped.

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