Though the Cabinet has tried to lower the burden on telcos by fixing the reserve price for the 2G spectrum auction at R14,000 crore per 5 MHz instead of the R18,000 crore proposed by Trai, it has evoked the usual howls of protest from industry. And not surprisingly since, apart from the fact that there is no rationale for fixing such a high reserve price—the 3G case reserve price was a fifth the final bid price, it was a seventh for BWA—there is no explanation for how the figure was arrived at. Why wasn’t the price R13,000 crore or R15,000 crore for that matter, and does the government not believe you can have fair auctions—why else would it need such high reserve prices? Nor is there any clarity on the M&A policy—while Trai had said a single telco could hold as much as 25% of the total spectrum in each band, the Cabinet has not opined on this. And because of the Presidential reference, the EGoM and the Cabinet couldn’t take a decision on what price should be for the ‘extra’ spectrum held by the older telcos. Apart from the impropriety in deciding piecemeal on Trai recommendations instead of on all of them together, the larger issue is the continuing uncertainty the telecom industry continues to face. Indeed, no decision has been taken on the vital issue of re-farming—taking away the more efficient 900 MHz spectrum from existing holders when their licence expires and giving them the less efficient 1800 MHz—even though the Cabinet has kept its options open. Which is why, though the Supreme Court cancelled 6 licences, the government plans to auction just 2 licences (plus another 2 slots of 1.25 MHz each in case any of the older players wish to augment their spectrum holdings).
That said, the critical issue is whether enough telcos will participate in the bid and will the biggies stay out, as some have indicated. Will tariffs go up the way some in the industry suggest? Though Trai’s assumptions—on the usage by subscribers and on the share of data in the industry’s total revenues—were quite heroic, given that industry has just slashed 3G tariffs to get in more customers, it’s unlikely 2G tariffs will rise sharply, more so given the large number of players. Some of the larger telcos whose licences expire in a year or so may find it expedient to not participate in the auction since they can get the spectrum at the same price when their licences are renewed, but if the government frowns on this, they may just participate. The outcome of the auction will indicate if Trai, and the government, have been too ambitious in the reserve price—the economy is in poor shape as compared to when the 3G auctions took place in 2010 and just a fraction of the money raised in the markets in 2010 has been raised in 2012. Given telcos are carrying too much debt, and bankers are a lot more cautious today, getting the auction to succeed will be a long haul.