The government is likely to fall short of its target of raising Rs 40,000 crore from the upcoming auctions of third generation (3G) spectrum by almost Rs 20,000 crore, said analysts.
“The target of Rs 30,000-40,000 crore was always an unrealistic one. A more realistic target is Rs 15,000-20,000 crore, taking into account that the former comes to Rs 8,000-10,000 crore per block, which is not feasible,” said a telecom analyst with a leading brokerage firm.
“While it’s the right time for the government (to conduct the auctions) due to the economic problems the country is facing, poor response from foreign players in the pre-bid conference and the ambiguity around the reserve price and the number of blocks to be auctioned might have shaken investor confidence,” he added.
With the Cabinet Committee on Economic Affairs (CCEA) looking at two options — raising the reserve price of a pan-India licence from Rs 2,020 crore to Rs 4,040 crore (as proposed by the finance ministry) or Rs 3,540 crore (an alternative proposed by the Department of Telecommunications) — the bidding might not be as aggressive as expected, said analysts.
There are also concerns over a proposal to levy an extra fee on the winning bidders. An internal committee of the Department of Telecommunications (DoT) has already turned down the proposal to levy an additional 2 per cent annual charge on successful bidders. “Bids in the auction are likely to get depressed as the outflow of administrative charges will be factored in,” it said.
Mahesh Uppal, director, Com First, said: “The government might have over-estimated the interest of foreign players and might have to lower expectations in terms of revenues.”
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The main concern should be that there are no surprises in store for potential bidders. Any additional cost could dampen their mood.”
“Only when the total cost is known will foreign entrants evaluate if it is more feasible to participate in the 3G auction to enter the 2G market or to acquire an existing company,” added Uppal.
“There is a lack of transparency. The eventual bids might be lower than expected. However, it will differ circle-wise. Metros and category A circles will see more aggressive bidding than category B and C circles,” said Harit Shah, telecom analyst, Angel Broking.
However, some experts felt India’s telecom growth story will encourage companies to bid for 3G spectrum as well. While 2G spectrum was given at throwaway prices, the proposed 3G auction is expected to do justice to this scarce resource.
“Foreign players need to enter markets like India, else they will perish. So, along with the big Indian players, these foreign players will be willing to spend. Though it might not encourage all players to take part, it will ensure that only serious players participate,” said Romal Shetty, executive director, KPMG Advisory.
The auction has already been delayed thrice due to inter-ministerial disagreements over issues like the reserve price and the number of blocks to be auctioned. The final decision will be taken by the CCEA once the Department of Legal Affairs gives its advice. The DoT is yet to issue the final schedule.