A lower reserve price will boost 2G auction prospects and government's revenue realisation

NEW DELHI: The 2G auction debacle, which fetched the government less than a quarter of its revenue target, and found no takers for more than half the airwaves on sale, has led to telecom companies demanding that the reserve price be slashed to Rs 3,500 crore, equivalent to that of the third generation (3G) sale price two years ago.
Operators say a starting price of Rs 3,500 crore, which is 75% lower than the base price for the just concluded sale process, and putting all available spectrum vacated by the quashed permits on sale, must be the first step towards rescuing the auction process when the next round takes place before March 2013.

The Cellular Operators Association of India (COAI) - the body representing GSM operators - said the auction outcome indicated that 'an artificially high reserve price that bore no congruence to market realities was the key reason for the failure'.

"The COAI 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 industry association said, while highlighting that most successful bidders in the auctions were companies that had lost their licences and were therefore compelled to participate despite the high prices and the limited availability, simply in order to sustain their customers, businesses and to protect their years of investments.
"The reserve price should at most be Rs 3,500 crore, which I believe will generate bidder enthusiasm and also discourage frivolous bidding," said the CEO of a leading GSM operator, who did not wish to be named, adding that the government must also minimise the impact of spectrum usage charges, which is a certain fraction of the operator's annual sales, as the revenue share regime results in high recurring cost that any bidder would factor in before participating in an airwaves sale.

Mahesh Uppal, director at Com First India, a consultancy dealing in telecom regulatory affairs, seconds the idea, but goes a step ahead by suggesting that even "as little as Rs 500 crore as reserve price" would keep out frivolous bidders.

"The government should ideally ensure reserve price is nothing beyond a token sum that prevents frivolous bidding. It could be as little as 500 crore because the market will eventually determine the value of spectrum, regardless of the low reserve price," said Uppal, adding that the yields from the 3G airwaves sale, that was several times the reserve price, "is clear proof".

Bharti Airtelchairman Sunil Mittal recently blamed the regulator, Telecom Regulatory Authority of India ( Trai), for setting a high base price, which he predicted would be the primary reason for the failure of the auctions.

Source:ET