This has to be the biggest coincidence of all time, but as in 2001 when there was an auction of telecom licences, this time around too, the government has introduced new policy confusion, all of which will ensure that this time too, the bids are pretty low.
In 2001, six months before the 2G GSM mobile phone auctions, the government introduced what was called “limited mobile” telephone licences with terms that were tilted against the existing GSM mobile service firms like Hutch and Airtel. The existing firms went to court and petitioned, without success, various people in government against the unfair treatment. With the considerable confusion that prevailed as the matter then got embroiled in the courts, the auctions fetched just Rs 1,633 crore for 17 circles. These licences, we later saw when firms like Bharti got listed some years later, were worth several times more.
Now, in 2010, similar confusion is being repeated in the case of the 3G auctions. Though the decision on 3G telephony was taken more than three years ago, the auction has been postponed on two occasions already and, going by what the government is saying, the defence ministry is still to free up the spectrum for the auction — which is why, from the earlier decision to auction four licences (apart from one to BSNL/MTNL), the government is now talking of two or three in a time frame which is still not clear. Blaming the defence ministry is all very well, but there appears to be more beneath the surface. For one, when the telecom and defence ministries did a reconciliation of records in April 2007, to see who was using what spectrum, the telecom ministry had enough spectrum to give to four-five players in most parts of the country — there was 15 MHz in Delhi and Gujarat (enough for just three players), and 10 in West Bengal, but most other places had 30 to 60 MHz. So, even if the defence is not vacating the spectrum it promised to, the government can go ahead with the auction in most circles with the spectrum it already has — the broad details of the reconciliation are available with even journalists.
As for the defence, as per the MoU it signed with the telecom ministry last May, it was to release 10 MHz immediately — the MoU was about the telecom ministry agreeing to set up a separate optic fibre network for it. Another 5 MHz was to be released within eight months (when the orders for equipment were placed) and a further 5 MHz after seven months more (when the equipment was supplied) — yet, the clearance for the network was got only in December! Who’s to blame for all this?
The policy confusion over 3G, sadly, stretches even beyond this. There is no clarity as yet on what the mergers and acquisition (M&A) policy will be, even though industry has been asking for this for over two years now. Under the operational policy, if one telecom company acquires the other (and, therefore, gets its spectrum), it will most probably have to surrender the spectrum (the reasons for this are complex and are linked to the subscriber norms for spectrum slots). Take the case of a new firm to understand the impact of this. Let’s say the firm wins 5MHz of 3G spectrum; it cannot survive on this and needs to have 2G spectrum as well — but if it buys up an existing 2G firm, it will have to give up the spectrum! In other words, with no clarity on M&A, no newcomer can effectively participate in the auction.
This is bad enough, but let’s take the case of established players. There is enough evidence, from the rapidly declining per user revenues in the sector, to show the industry is in serious trouble. Since customers are going to take a while — if at all — to begin paying higher revenues (for value added services), the only way out is to lower costs even more; one sure way to do this is allow firms to consolidate — higher amounts of spectrum will dramatically lower their need to set up more telecom towers, for instance, and will lower capex. But, with the existing M&A rules, firms will have to give up spectrum once they merge — hence no merger.
It is obvious the M&A rules will be changed, but the question is when. Before the auction, which is what will allow higher bids, or afterwards once the lower bidders will have won? All of which means only those who know the rules will be changed later will bid.
