High price key reason for 2G auction failure: COAI

The telecom industry today blamed the poor response to the 2G spectrum auction on the high reserve price set by the government.

“First and foremost among the many causes, is the clear recognition that an artificially high reserve price that bore no congruence to market realities was the key reason for the failure,” GSM industry body, COAI said in a statement.

The second factor is that majority of the bidders are actually operators who had lost their licences and are compelled to participate in the auctions despite the high prices and the limited availability, simply in order to sustain their customers, businesses and to protect their years of investments, it said.

“Finally, the limiting of spectrum available for auction, which contrary to the Supreme Court ruling (to auction the entire spectrum related to the quashing of the impugned licences), added to the sense of uncertainty and fear of irrational bidding for many potential bidders,” the COAI said.

The artificial scarcity created by holding back spectrum combined with the high reserve price dampened any enthusiasm for aggressive bidding by the operators, it added.

“The auctions have concluded on the exact note as predicted,” the Cellular Operators Association of India (COAI) said.

It had stated that the high reserve price would ensure that there would be limited players coming into the market to bid, and had also indicated that there would be extremely muted bidding with several circles that would have no bidders at all.

“The results of the auction clearly indicate that the reserve price was completely off the mark, with none of the interested operators also not pitching for the circles that they had committed to participate publically,” Prashant Singhal, partner in member firm of Ernst & Young Global, said.

The government’s plan of Rs 40,000 crore has fallen flat and they would now need to go back on the drawing board with respect to 800 MHz and Delhi, Mumbai and Karnataka on 1800 MHz to figure out the market driven price, he added.

The COAI said the root of the problem lies in the procedure adopted by the government in executing the auctions.

It, however, said, that auction is the “best and the most transparent way to determine the allocation and market price of a resource as rare as spectrum for commercial use”.

The COAI said only about 35 per cent of the total spectrum (only 27 per cent in terms of reserve price) put up for auction was actually bid for. So the amount of freed spectrum now held by the government (413 MHz) is a waste of precious national resources, it added.

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