Why 2G auction didn’t rake in the moolah

Thomas K. Thomas New Delhi | Updated on March 12, 2018 Published on November 15, 2012


The Comptroller and Auditor General in 2010 had said that the Government could have earned as much as Rs 1.76-lakh crore had it auctioned 2G spectrum. In 2008, the then Telecom Minister A. Raja had followed a distorted version of the ‘first come first served’ model to give away 122 licences to new players for Rs 9,014 crore.

Four years later the same spectrum has yielded Rs 9,407 crore after the Government followed CAG’s advice.

CAG’s valuation

The CAG had given three sets of numbers in 2010 based on different events. It said that the Government could have earned Rs 40,422 crore going by the equity sale by Unitech to Norway’s Telenor. Unitech, which was one of the players to get new licences in 2008 at 2001 prices, had sold a 67.25 per cent stake to Telenor for Rs 6,120 crore, which the CAG used to calculate the value of spectrum for all the 122 licences.

The CAG also used an offer made by Sivasankaran promoted STel to put an estimate to loss to the exchequer. STel had then offered to pay about Rs 13,700 crore for 6.2 Mhz of pan-India spectrum.

But more than the offer made by STel or the value derived from equity stake sale, it was the price derived from the 3G spectrum auction that influenced the Government to fix a high reserve price for the recent 2G auction. The TRAI fixed the base price at Rs 18,000 crore, which was later brought down by the Government to Rs 14,000 crore. “If we had fixed it at Rs 18,000 crore in terms of what TRAI had recommended, even this (Rs 9,407 crore) would not have been fetched,” Telecom Minister Kapil Sibal said when asked to comment on the reason for fixing the high reserve price.

So if 5 Mhz of 3G spectrum fetched the Government over Rs 67,000 crore, why didn’t the same happen now? For one, the telecom market has changed drastically during the last 2-4 years. If there was a queue in 2008 to enter the mobile space with as many as 40 new players applying for licences, in 2012 there were just two new players.

The high reserve price, based on 2010 market sentiments, bore no congruence to market realities. “In spite of the industry consistently highlighting the many flaws in the assumptions and predicted outcomes, the Government appeared bent on plunging ahead on these dubious grounds,” says Rajan Mathews, Director-General, Cellular Operators Association of India.

Flop by Design?

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

Industry watchers say that the auction was designed to flop, which has probably given the Government a chance to defend its 2008 policy. Although Sibal has repeatedly said that the Government does not want to settle any score with anyone, sources in the Government indicated that voices have already started discrediting the auction process as suggested by the CAG.


Published on November 15, 2012

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