The government has another failed spectrum auction on its hands and this means its target of earning over Rs 40,000 crore through sale of airwaves within this fiscal has gone for a toss. But this is not its only problem. What does the government do now, as and when licenses of an existing telcos come up for renewal? Some would call it behaviour fit for a cartel but no telco other than Sistema Shyam Teleservices today submitted an application for participation in the auctions.
Today was the last day for telcos to file applications. Auctions were scheduled to begin from 11 March. Apart from Sistema, no other telco put in a request for participation, either in the GSM space or in the CDMA space.
So now, not only will there be no auction, Sistema can bag spectrum at the reserve price itself since no one else would bid for CDMA airwaves. Some time back the government had slashed CDMA reserve price by 50 percent and we had said then that the auctions, at least in CDMA, were being planned only to benefit one player which is Sistema. This has proved correct.
But apart from Sistema, the government now has a huge problem on its hands and the telecom sector could well descend into a mess. As per draft guidelines for the March auctions in 1,800 mhz and 900 mhz spectrum bands, the government had said it will consider all those telecom companies whose licenses come up for renewal in 2014 as ‘new entrants’. So this was seen as Telecom Minister Kapil Sibal's attempt to force all telcos to participate in the auctions or risk losing their operating permits. Now that no one has taken this threat seriously, what's to be done?
The Department of Telecom (DoT) is left with two options: either agree to the GSM telcos' demand of not asking them to vacate 900 mhz spectrum and allot spectrum at an administered price or let telcos' licenses lapse. If neither of these options is chosen, then both the telcos and government could separately end up in a long legal battle.
Earlier, Vodafone and Bharti Airtel had moved the high court, challenging the government's decision to auction 900 Mhz spectrum while their applications for an extension to their licenses were pending with DoT. Last week, Vodafone filed such a petition after having sought in December last year extension of its licence period for Delhi, Mumbai and Kolkata circles, which are coming up for renewal in November 2014. Vodafone had sought extension by 10 years, saying license conditions do not mention "renewal" but provide for extension.
It has also said that "both the policy and licence provide for continuity and this action of DoT to arbitrarily withdraw the 900 MHz spectrum is not only against the provisions of policy and licence but also disruptive and against public interest". As per the DoT's auction timeline, the second round of spectrum sale was to start from 11 March in which the government was to put up the unsold GSM spectrum in 1800 MHz band and airwaves held by telecom licences in 900 MHz band that are coming up for renewal starting 2014 onwards. The plan was to auction spectrum in 900 MHz band for Delhi, Mumbai and Kolkata circles. This, after existing telcos were allowed to retain 2.5 MHz spectrum in each circle in the same band even after expiry of their licences after paying a market-determined price.
Vodafone has around 24 MHz spectrum in the 900 MHz band in these three circles.
The telcos have decided to not participate in the auction because they don't want the more efficient 900 mhz spectrum to be taken away from them.
These telcos would have had to bid for the much less efficient 1800 mhz spectrum to continue services or bid for 900 mhz at an exorbitant price - and no telco was willing to submit to this decision of DoT.