Govt vs telcos: Reading between the lukewarm 2G auctions

From all available data, it appears that bidding in the ongoing 2G auctions is currently on in only one of the 22 circles, which is Bihar.

The Government began conducting auctions for 1800 mhz spectrum band on Monday but the high reserve price deterreed potential bidders and at the close of the first day, no circle other than Bihar saw excess demand. Loosely translated, this means for no circle was demand more than the spectrum available.

By Monday evening, the Government had managed to collect revenue of just over Rs 9200 crore, less than a fourth or less than 25 percent of the revenue target it had initially set for these auctions. This morning, auctions recommenced at around 9 am with the 8th round.

Telecom industry experts pointed out that the government may not mop up anything more than Rs 10,000 crore from this auction.

By close on Monday, Bihar circle’s price had climbed by a mere Rs 44 lakh over the base price of Rs 44.21 crore for 1.5 mhz pf spectrum.

The high reserve price of Rs 14000 crore for 5 mhz of 2G spectrum has ensured quite a lukewarm response; the Centre has already had to cancel auction of the CDMA airwaves in the 800 MHz band since all bidders pulled out at the last minute. Even for 2G or 1800 mhz, only five telcos are in the fray.

Initially, the Government was eyeing Rs 40,000 crore in revenue from the sale of airwaves but now unless Telenor and Videocon get aggressive, generating even Rs 10,000 crore would be tough.

In all, five telecom service providers (telcos) are in the fray-incumbents Bharti, Vodafone and Idea and also Telenor (through new company TeleWings) and Videocon Telecom.

If one were to go purely by the amount of earnest money deposit (EMD) each company has made before the start of the auctions, Idea should have been the most aggressive bidder since it has shown its intent to bid for about 97 percent of a total 22 circles. But this could well be misleading, since industry sources now tell us Idea deposited the EMD enough to bid for only 7 circles.

And just before the last date for EMD expired, the Department of Telecom (DoT) changed the rules of the game to add the money that telcos had deposited with it earlier for licenses which were eventually cancelled by the Supreme Court in February this year.