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Corporate Nov 20, 2012

Failed 2G bidders opt out in some circles, tariffs may rise

By Sindhu Bhattacharya

New Delhi: The recently-concluded 2G spectrum auctions were a partial failure, with less than half the GSM spectrum being bid for, and the revenues generated being far below expectations.And there was no auction at all for CDMA spectrum, since no one was interested in putting up a single bid here.

Telecom industry players say the auctions flopped because of the unusually high reserve price for spectrum which made it unviable for them to bid in large numbers.

Now it transpires that the government was not the only loser in these auctions - consumers may have to pay more for telecom services eventually since many telcos are switching off operations in circles where they failed to bag spectrum, lessening competition. This would mean tariff hikes if not now then certainly in the near future.

Sources confirmed that Tata Teleservices has informed the Department of Telecom (DoT) that it will be terminating services in three circles where it had lost licences earlier. Tata Tele did not participate in the CDMA auction this time and, therefore, has to terminate services in circles where its licences stand cancelled.

So from the midnight of 18 January, there will be no service provided by Tata Tele to subscribers in Jammu & Kashmir, Assam and the North East.

It is interesting to note that in the CDMA business, the other biggie which also lost licences - Sistema Shyam Teleservices - has stayed put since it is awaiting clarity on a curative petition filed in the Supreme Court, challenging the cancellation of its licences.

Videocon Telecom and Tata Teleservices had even evinced interest in buying CDMA spectrum this time but there is no clarity on whether either company will come forward if the government reduces the reserve price now.

But what happens if the government now decides to hold another auction for CDMA airwaves at a lesser reserve price? Only Videocon Telecom and Tata Teleservices had even evinced interest in buying CDMA spectrum this time but there is no clarity on whether either company will come forward if the government reduces the reserve price now.

In the GSM space, Telenor managed to bag 5 Mhz of spectrum in Andhra Pradesh, Uttar Pradesh East, Uttar Pradesh West, Bihar, Gujarat and Maharashtra in the recently concluded auctions. But this leaves Mumbai, Kolkata and West Bengal circles, where it did not win spectrum and will, therefore, be obliged to switch off services, just like Tata Teleservices.

Videocon Telecom lost 21 licenses after the Supreme Court cancelled all licences awarded by former Telecom Minister A Raja. In the auctions earlier this month, it managed to get back only seven circles. Company sources say Videocon was serious about these seven circles only and that each of the remaining 14 circles had less than 10,000 subscribers since network rollout had not been completed in any of them. But this still means somewhere over one lakh subcribers will be impacted.

Idea Cellular, the other GSM heavyweight which lost licences, has managed to win back all of them so there should be no cancellation for Idea customers.

And unrelated to the 2G auction debacle, another telco is hanging up on some of its customers. Agency reports last month suggested that Aircel is believed to be cutting down operations in at least five circles, starting with Madhya Pradesh, to cut the cost of service following severe margin pressures and a maturing voice market.

A PTI story in The Hindu Business Line last month quoted sources to say that Aircel has told distributors in the MP circle that it plans to restructure its entire business model and it may not require their services anymore. A similar kind of drive is expected in Gujarat and Haryana next, followed by Rajasthan and Punjab later. An Aircel spokesperson said, "Aircel is revamping its business model innovatively to lower 'cost to serve' without compromising on customer service or network experience." The spokesperson said that the company is not shutting down its operations in Madhya Pradesh.

"The telecom industry is facing severe margin pressures as the voice market is maturing and the data demand in its true sense is still nascent. Operational costs are high and incremental market demand for relatively new players is prohibitive," the statement added. Asked if the company will lay off staff also, the spokesperson refused to comment but said that the company is taking steps to cut down costs and a new business model will be put in place

by Sindhu Bhattacharya

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