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DoT favours open auction of vacated 2G spectrum

Draft Cabinet note says everyone should be invited to bid even as incumbents, new operators spar to keep each other out

Surajeet Das Gupta  |  New Delhi 

In a move that could pave the way for open auction of the 2G spectrum released from 122 cancelled operators, a draft Cabinet note prepared by the Department of Telecommunications (DoT) has recommended the spectrum price be discovered through an auction involving “existing players and new parties”.

Though the draft note is based on decisions taken by the Telecom Commission finalised before the Supreme Court judgment cancelling 122 telecom licences, it is important as it reflects a view in favour of an open auction. A bitter battle is already brewing between incumbent operators and the new players whose licences were cancelled on who should be allowed to participate in the auction. According to Trai (Telecom Regulatory Authority of India) estimates, about 28 MHz of spectrum would be available on average in each circle, and whether the auction price would go higher or lower would depend on the number of players in the race.

Uninor managing director Sigve Brekke has openly told the media the company wants the auction to be limited only to new players. The view has been echoed by some executives of S Tel, which has also seen its licences get cancelled.

* Draft note says spectrum price should be discovered by auction open to “existing players and new parties”; Trai wants “open, transparent” auctions
* Some new operators, such as Uninor, whose licences were cancelled want auction limited to new players; incumbent operators like Vodafone India want no restrictions 
* International telcoS’ response to bidding for 2G spectrum muted. Teliasonera says not interested, AT&T, MTN and Deutsche Telekom non-committal
* Some incumbents want bidding based per MHz, others want spectrum sold in 4.4 or 5 MHz blocks

However, incumbent operators like Vodafone India have said they want to be included in the auction process for additional spectrum. A Vodafone India spokesperson said, “No, we do not agree with this view (Uninor’s). The auction should be open to all operators. Obviously, the operators will participate in the auction as per their need for spectrum. It should not be prescribed who can bid and who cannot.”

The Supreme Court has directed Trai to give recommendations on how to auction the 2G spectrum that will be available after the cancellation of licences of eight operators. These recommendations will then be considered by the DoT to take a final call.

Trai officials say the auction would be transparent and should be open to all players. “A final call will be taken only after consultations, but the auction will be transparent and should be open to all licencees,” said a source in the regulator.

The draft note which would be sent to the cabinet for its consideration has said the current price recommended by Trai for spectrum, based on an expert committee's view, does not reflect the true market value. Hence, instead of adopting this price all efforts should be made to discover the price of spectrum in the 1,800 Mhz and 800 Mhz bands at the earliest through an appropriately designed auction process open to all parties.

Opinion among telcos is divided on what the response to the auction would be. Many analysts say amongst the eight operators not more than three would go for rebidding while the others will cut their losses and move out. As a result, they expect the value of the spectrum will not skyrocket, like in the case of 3G. Says one of the operators whose licence has been cancelled: “Earlier, we paid Rs 1,651 crore for a pan-India licence, we don’t expect the base price to be more than 3,500 crore and the value of pan-India spectrum to be more than Rs 5,000 crore. After all, we don’t see any new players coming in.”

Predictably, the mood among global telcos has been muted. European telco Teliasonera, one of the leading operators in Sweden, when asked whether it would be interested in bidding, said: “We have no such plans at the moment”. AT&T, which has on and off looked at making a bid back into the country, said, “We decline comment.”

South African telcos MTN—it said, "We do not comment on market speculation" — and European Deutsche Telecom also were non-committal.

However, some incumbent operators say the price of 2G spectrum could go the same way as 3G. Says the CEO of one of the leading Indian telcos: “Remember 2G is encashable immediately unlike 3G whose value will be available only after 5-10 years. So, it is more valuable. If a Reliance Industries or some other player decides to enter the ring, prices could go haywire."

Reliance Industries, however, declined to comment whether it will bid for 2G spectrum. The Cabinet note has recommended incumbent operators pay a one-time charge retrospectively for all spectrum allocated beyond 6.2 MHz in GSM and 5 MHz in CDMA.

The price of this spectrum would be based on whichever is higher -- the 3G auction price or the price recommended by an expert group set up by the regulator. The group had suggested a price 1.65 times more than 3G on average.

Bahrain Telecom exits S Tel
Bahrain Telecom, a shareholder in S Tel — one of the operators whose licences were cancelled by the Supreme Court last week — became the first global firm to exit the Indian telecom market by selling its nearly 43 per cent stake for $175 million. S Tel said Bahrain Telecom was “very uneasy” in India and expressed the wish to sell its stake. “The telecom sector, particularly for the new operators, over the last two years has become like a badly planned hurdle race,” an S Tel spokesperson said. 

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First Published: Thu, February 09 2012. 00:21 IST