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Corporate Nov 12, 2012

Live: 2G auction in its 6th round; Govt mops up paltry Rs 9,200 cr

By Firstbiz Staff

6:43 pm Firstpost's Sindhu Bhattacharya analyses what the auction means for the government. Read full copy here.

5:41 pm Government's revenue till now stands at a paltry Rs 9200 crore from 2G spectrum auctions, according to the Department of Telecom. This is less than a fourth of the revenue generation the Government was initially expecting from these auctions at over Rs 40,000 crore. The reserve price has been kept at Rs 14,000 crore for 5 mhz of spectrum and DoT said this price has been exceeded in only two circles: UP East and UP West.

So does this mean the auctions are not just a flop but an embarrassment for the Telecom Minister, who had predicted aggressive bidding just a few days back? The auctions are not over though, with the sixth round of bidding currently underway. Till the end of 5th round, 95 blocks had been bid for while in the sixth round, this went up to 98 blocks spread over 18 circles.

5:06 pm The 2G auctions have gone into their 6th round and CNBC TV 18 reported that Telenor, which lost 9 licenses, has bid for 8 circles. It lost 9 licenses after the Supreme Court cancelled total 122 licenses awarded by former telecom minister A Raja. Telenor has not, till now, bid for Mumbai circle due to the high reserve price

2:47 pm Given the lukewarm response to the 2G Spectrum auction, the auction may end as early as 4PM against the scheduled 7 PM as there are no takers for airwaves in category A circles like Delhi, Mumbai, and Karnataka, which account for 70% of the base price, even after the first two rounds of bidding.

"There are no bidders in some circles," a senior government official who declined to be named, told Reuters.

According to a report in the Economic Times, failure to get bidders in key circles implies government may get only about 40% of the Rs 40,000 crore it expected to raise from the auctions i.e. only Rs 16,000 crore!

The muted response to the 2G auction is in contrast to the sale of 3G airwaves that the government held in 2010, which lasted more than a month. India raised more than $12 billion from that auction.

No aggressive bidding so far, each circle going at base price

1:18 pm Not a single telco is participating in 2G auctions today has been "aggressive" sources tell Firstpost.

They also say that though the first round did see excess bidding for UP (East), telcos withdrew when price was raised, thereby bringing down price for each of the 22 circles to the base price of Rs 14,000 crore for 5 mhz of spectrum.

One of the participants told Firstpost "everything is going at the base price. No one wants to pay even a paisa more. So there is no question of aggressive bidding at all".

Auction methodology in points:

1) There are total 11 blocks of 1.25 mhz for sale in each circle.

2) If demand goes up to eight blocks or more for a circle, it is considered excess demand

3) So let's say UP East sees demand for 8 blocks by new players. This immediately raises the base price by 1%. If demand is for 9 blocks too, the increase is 1%; for 10 blocks price hiked by 2% and for 11 blocks 3%.

4) the first and second bidders - timing wise meaning the first two bidders to press the button and indicate their willingness to bid - are declared provisional winners in each round.

5) these two bidders may then bid in the second round at the higher price or they may choose to excuse themselves.

6) each round of auction is approximately for an hour

7) the auction began at 9 am and is scheduled to continue till 7 pm

No bids for Delhi, Mumbai; UP circle sees excess bidding

12:22 pm According to sources, only one of the 22 circles up for bidding saw excess bidding in round one. This is the Uttar Pradesh (East) circle.

This means there were more bids than actual slots available and therefore it can be inferred that this circle will see a price higher than the reserve price of Rs 14,000 crore for 5 mhz of spectrum.

In round two, just one circle saw any bidding happening at all. Round three is currently on.

Sources tell Firstpost that there have been no bids at all for category 'A' circles of Delhi, Mumbai, Karnataka and category 'B' circle of Rajasthan till now.

First auction round ends in poor response from telcos

11:21 pm The first round of spectrum auctions is over, but according to TV reports, the response from players has been poor. This lackluster participation was expected because of the high reserve price of Rs 14,000 crore for 5 MHz of 2G spectrum. Sources told CNNIBN that the government has received no bids for 2G spectrum in five to six of the top circles.

Telecom Secretary R Chandrashekhar said the auction started as per schedule and will be conducted from 9am in the morning till 7:30 pm in the evening.

"As per schedule, auction time is from 0900 hrs to 1930 hrs. Participating firms have been given an option to seek extension of auction rounds," consulting firm for auction, E-Procurement Technologies' Vice President Suraj Radhakrishnan said.

Bidders will have a total of 240 minutes of extension time to be used in the entire auction process, he added. Radhakrishnan said there should be around six to seven rounds of auctions per day.

Five telcos to bid for GSM, no application for pan-India licence

10:35 AM Several business leaders and experts have forecast lacklustre bidding. Industry heavyweight and chairman-cum-group chief executive officer of Bharti Enterprises Sunil Bharti Mittal has claimed, "The auctions will be over on the first day itself." No player has applied for a pan-India licence, while five telecom players - Bharti Airtel, Vodafone, Idea Cellular, Telenor and Videocon - are bidding for GSM

10:am Telcos can refinance 2G auction debt by raising foreign loans

In order to nudge telcos bidding for spectrum to opt for upfront payment instead of staggered payments, successful bidders will now be able to raise debt overseas to help the government maximise its proceeds. Staggered payments would have dented the government's chances of meeting its fiscal deficit target of 5.3 percent of GDP. The telecom industry too had been lobbying for relaxation in the ECB norms due to the reluctance of banks to lend to the sector.

9:30 AM 2G auction begins, govt unlikely to get even half its target

Auction of second generation (2G) airwaves or spectrum began this morning amid doubts whether the government would be able to gather even half of its revenue generation target from the sale of the scarce resource.

The high reserve price of Rs 14,000 crore for 5 MHz of 2G spectrum has ensured quite a lukewarm response; the Centre had to cancel auction of the CDMA airwaves in the 800 MHz band since all bidders pulled out at the last minute. Even for 2G or 1800 MHz, only five telcos are in the fray.

Initially, the government was eyeing Rs 40,000 crore in revenue from the sale of airwaves but now, experts say generating even half of this process may be a problem unless Telenor and Videocon get aggressive since they will need to win back the circles they lost after the Supreme Court cancelled total 122 telecom licences in February this year.

Idea most aggressive bidder so far

9:00 AM If one were to go purely by the amount of earnest money deposit (EMD) each company has made before the start of auctions, Idea would be the most aggressive bidder since it has shown its intent to bid for about 96 percent of total 122 circles.

Among the telcos who are actually participating, Bharti and Vodafone are looking for only top-up spectrum in some of the circles. Reuters

But this could well be a fallacy, since industry sources now tell us Idea deposited the EMD enough to bid for 7 circles only. And just before the last date for EMD expired, the Department of Telecom (DoT) changed the rules of the game to add the money that telcos had deposited with it earlier for licences which were eventually cancelled by the Supreme Court in February this year.

So actually, even Idea will not bid for majority of the circles, say industry sources. If this analysis proves to be true, then the Government's revenue generation target could take a further hit. Anyhow, of the six new players which were issued licences during the regime of former communications and IT minister A Raja, only two - Videocon and Telenor - are participating this time. Etisalat DB, Loop Telecom, S Tel and Sistema Shyam have boycotted the auctions.

Bharti and Vodafone are looking for only top-up spectrum

Among the telcos who are actually participating, Bharti and Vodafone are looking for only top-up spectrum in some of the circles and are expected to be marginal players at best in these auctions.

The Government is putting a minimum of 10 MHz of spectrum up for auction in all regions and will add an additional 3.75 MHz in all circles, except the metro cities of Delhi and Mumbai, based on demand. But the additional 3.75 MHz may not be required in most circles, given the initial reluctance of companies to get airwaves at the high reserve price.

Not just price, related decisions on other aspects of spectrum pricing have also made the telcos see red.

For one, the recent Government decision to allow incumbent telcos to retain only 2.5 MHz of the more efficient 900 MHz frequency band at market rates at the time of licence renewal has GSM biggies such as Bharti, Vodafone and Idea up in arms. The GSM lobby group, Cellular Operators Association of India, has warned of legal action over this issue.

The threat of a long legal battle may also hold from another decision - to impose a one-time charge for excess spectrum which the Government has also recently announced and which will impact incumbent telcos the most.

by Firstbiz Staff

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