Spectrum riddle: Did cartelisation kill 2012, '13 auctions?

New Delhi: If telecom companies were so keen on getting additional spectrum that each sought this scarce commodity multiple times since 2002, why did the spectrum auctions in November 2012 and March 2013 fail? There was very little participation by telcos in 2012 and in 2013, only Sistema Shyam Teleservices (a CDMA player) came forward to place any bids at all in the spectrum auctions.

The November auction saw the Government generate less than a third of its targeted revenue from spectrum auction (target was Rs 28,000 crore) while the second auction saw no participation at all from any GSM player. In both auctions, telcos cited high base price of 2G spectrum and virtually kept away from auctions.

In a letter to Telecom Secretary M F Farooqi dated 20 May, the Comptroller and Auditor General of India has made a rather pertinent observation: many leading telcos, who were constantly demanding spectrum for meeting quality of service parameters of TRAI, appeared to form a cartel and declined to take part in the 2012 and 2013 auctions which negated their own earlier position on requirement of additional spectrum. The government decided to impose an upfront charge for 2G spectrum and take an auction route to determine its market price in 2011, after which telcos appear to have developed a cold feet over taking more spectrum.

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[caption id=“attachment_822967” align=“alignright” width=“380”]  Bharti has not been allotted additional spectrum in Delhi service area since July 2003 but Bharti’s subscriber base shot up nine times. Reuters[/caption]

The CAG is not making allegations without substantiation though. It has backed up charges with substantial data gleaned from the records of Department of Telecom itself, to prove the allegations.

Some facts quoted in the CAG letter to Telecom Secretary:

1. Bharti Airtel made as many as 68 applications for additional spectrum for 21 service areas (excluding Delhi) between 2008-2011 but still made only a token participation in November auctions where it bought just 1.25 mhz for Assam service area. It made requests for additional spectrum at least 11 times during 2008-2011 for Delhi circle citing urgent requirements but did not bid for Delhi service area either in November or in March auctions. While Bharti kept on asking for more spectrum, its subscriber base continued to multiply which raises the question of quality of service to subscribers if spectrum quantum remained same but their number multiplied several times. Bharti’s Delhi subscriber base shot up nine times between 2003 and 2013 despite the company not being allotted any fresh 2G spectrum in this decade.

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2. Vodafone Essar sought additional spectrum in Delhi circle through 15 applications since 2003 but none was allotted to it. The company chose not to participate in auctions for Delhi in November and in March. CAG says Vodafone is providing mobile services to 84.6 lakh subscribers in Delhi service area which is almost three times the subscriber base set by DoT for 10 mhz spectrum.

3. By 2013, Idea Cellular was providing cellular services to 28.86 lakh subscribers with 4.4 mhz spectrum in Mumbai service area which is more than five times the subscriber base criteria set by DoT. Idea has been repeatedly requesting for additional spectrum since February 2009 when its subscriber base was hardly 6 lakh but did not participate in the auction for Mumbai in recent auctions. Idea did not even obtain 3G spectrum for Mumbai in 2010 auctions. In Delhi, the same story was repeated. It wasd providing service with 8.2 mhz spectrum to 47.37 lakh subscribers in Delhi in 2013, more than double subscriber base criteria of DoT. Idea made repeated requests for additional spectrum since 2006, the last request was made on February 28, 2011. But no participation in either auction thereafter.

4. Reliance communications is catering to 40.96 lakh GSM subscribers in Delhi by December 2012 with 4.4 mhz spectrum, which is more than eight times the subscriber criteria of 5 lakh. It did not participate in the November auctions for Delhi; in other 12 service areas also it continues to provide service to subscribers many times more than what is prescribed by DoT.

5. Tata Tele was providing GSM services to 55.26 lakh subscribers in Karnataka circle by December 2012 with 4.4 mhz opf spectrum, which is seven times thepremitted criteria of DoT. This company has also been repeatedly requesting DoT for more spectrum but did not participate in either auction.

The CAG has provided many instances of seeking additional spectrum by all the telcos mentioned above in different service areas for the last several years. It has also, at each step, sought clarity on how these operators could manage to provide service to multiple times more subscribers than DoT’s criteria related to the amount of spectrum held by each.

Just one instance here: Bharti has not been allotted additional spectrum in Delhi service area since July 2003 but Bharti’s subscriber base shot up nine times. It has 91 lakh subscribers in Delhi as of January 31, 2013 and was allotted 10 mhz spectrum in the 900 mhz band till July 2003 on attaining subscriber base of 10.68 lakh. So from 10.68 lakh subscriber numbers multiplied nine times without Bharti needing additional spectrum is what CAG is pointing towards.

Even if part of subscriber increase was due to 3G spectrum allotted to Bharti from September 1, 2010, CAG alleges that Bharti was still able to cater to 69.5 lakh customers as of August 31, 210 with the 10 mhz of spectrum allotted til July 2003. Bharti did not bid for spectrum in Delhi service area either in November 2012 or March 2013.

DoT will surely need to provide detailed answers and comments to CAG on these observations in a timebound manner. CAG’se observations are bound to create a flutter in the telecom sector, which is yet to emerge from the scam allegations in an earlier regime.