2G auction round 1 ends with poor response from telcos

The auction for 2G spectrum almost ended on the very first day of bidding with poor response from the operators. Bidding in almost all the circles barring Bihar stopped. Of the 176 blocks of spectrum that were put for sale, Government received bids for only 98 slots.

No operator bid for pan-India spectrum. There were also no bids for key circles, including Delhi, Mumbai, Karnataka and Rajasthan. A total of 7 rounds were held today at the end of which the Government stands to get Rs 9,200 crore, much lower than the target. Government was expecting to sell at least one slot of 5 Mhz pan India which would have fetched Rs 14,000 crore.

There will be no bidding on Tuesday on account of Diwali. The final list of winners will be available only after the auction ends. Going by the intensity of bidding the auction could get over on Wednesday with only Bihar seeing marginal increase in the bid price.

The winning price in most of the other 21 circles is the same as the base price fixed by the Government, indicating that the bidders did not quote any fresh amount for these circles.

For example, the base price for Andhra Pradesh was Rs 286. 91 crore before the auction and at the end of the seventh round the winning price is the same.

There is no increase in price for spectrum in other circles such as Gujarat, Punjab and Maharashtra. This indicates that the auction in these circles may have got over in first round itself with no player outbidding each other.

In comparison, when the Government sold 3G spectrum in 2010, the base price was fixed at Rs 3,500 crore for 5 Mhz pan India. After 34 days and 183 rounds of bidding, Government had got Rs 67,718 crore from that auction.

Doomed to flop

Telecom companies blamed the flawed auction design for the muted response. Operators have been saying that the base price at Rs 14,000 crore for 5 Mhz spectrum was too steep. Delhi, for instance, had a price tag of Rs 693 crore.

Price discovery

“The auction was about discovering the market price. By setting such a high reserve price the Government ended up fixing a price that was not based on demand and supply principles,” said a market watcher.

The other reason for the muted response is that the Government did not release the entire spectrum available for the auction. A significant chunk of spectrum which got vacated after cancelling the 122 licences has been held back for re-farming. This has created an artificial scarcity in the market which the Government hoped would drive up the demand. But that has not happened because of the steep base price.

But, according to Government sources the damp squib auction could be used by the Telecom Ministry to further defend its decision to give new licences in 2008 on a ‘first come first served’ basis.

The allegation against the Ministry is that it could have earned more revenue for the Government by auctioning the spectrum.

In 2008, the Government got about Rs 9,000 crore by giving licences to new players at Rs 1,650 crore for 4.4 Mhz of pan-India spectrum. If the current auction ends on Wednesday, the net revenue will not be very far from that number.


(This article was published on November 12, 2012)
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