The weak response to the auction of spectrum in the 1800 Mhz band, which ended in two days, has many implications for the telecom sector. The fact that leading telecom companies did not bid for large circles like Delhi, Mumbai, Rajasthan and Karnataka indicates that there are no buyers at the current base price. These four circles account for 51 per cent of the reserve price. Large players have largely been selective about spectrum shopping, with Bharti buying only one block for Rs 8.7 crore in Assam, while Vodafone bought extra spectrum in 14 circles. Videocon and Telenor secured spectrum in six circles each for Rs 4,020 crore and Rs 2,220 crore, respectively. Not surprising then that the Department of Telecom 102 block out of the 176 available blocks. Idea has won spectrum in all the circles where its license was cancelled and an additional one in Bihar.
The market believes that this failure of this auction would have implications for the sectors. For starters, it’s clear that there is “limited demand” for spectrum at high prices. Goldman Sachs believes “the government will likely reduce the reserve price in circles where there was not even a single bid.” Since the winning price of this auction will be linked to renewal spectrum price and for onetime charge, we now see downside risks to potential regulatory payments for incumbents like Bharti/Idea.” Telecom analysts believe that the reserve price may be reduced for circles where players have not bid at all. Lower regulatory payouts is good for telecom companies, but there isn’t enough clarity on several issues yet.
Given that the future pricing of spectrum was linked to the outcome of this one, the government will have to come back to the players with a new reserve price, as the current reserve price has become a ceiling for spectrum and not base price. A clear outcome of this failed auction is that there is no market determined price for GSM spectrum in four large circles just as there is no market determined price for any CDMA circle. Analysts also believe that telecom companies may not be willing to pay twice the price of winning bids of this auction, when their licenses come up for renewal. BRICS Securities says: “Since pricing of the 2G auction was meant to act as benchmark for deciding the pricing for all other spectrum (like refarming of the 900 Mhz band, penalty of excess spectrum beyond 6.2 Mhz, conversion of allotted spectrum to “liberalized” spectrum and license renewal cost) any downward revision will have a positive cascading effect on all aspects of spectrum pricing.”
