The first day of India’s 2G spectrum auctions produced a disappointing result: two of the country’s most valuable regions drew no bids after several operators objected that the government-set prices were too high.
On Monday the government received bids totaling Rs9.2 billion ($1.7 billion), less than a quarter of the amount it had hoped to raise. The shortfall is an embarrassment for both the telecom sector and a government facing a large fiscal deficit; the budget had anticipated Rs40 billion in revenue from these spectrum license sales.
Bidding will resume on Wednesday. At present five operators remain in the running: Bharti Airtel, Vodafone, Idea Cellular, Telenor and Videocon. The government had planned to run separate auctions for spectrum used by GSM and CDMA operators.
However, the withdrawal of Tata Teleservices and Videocon from the CDMA auction last week left that process without any bidders. Several other notable players are absent from the GSM auction, including Loop Mobile, MTS India, Reliance Communications, Reliance Industries, BSNL, MTNL and Aircel.
The auction follows a February Supreme Court decision that revoked 122 previously issued telecom licenses, ruling that the 2009 allocation process had been “totally arbitrary and unconstitutional.” The judgment, part of a high-profile corruption investigation, affected a number of companies, among them Telenor, Sistema and Etisalat.
Operators whose licences were revoked may continue to provide services until early next year, but to operate beyond January they must secure spectrum in the current auction process.
Sistema has already confirmed it will not participate further, saying that current spectrum reserve prices—up to four times higher than in 2008—make continued participation commercially unviable.
The controversy has dented confidence in India’s once highly regarded telecommunications industry. After years of steady expansion, the sector now faces uncertain conditions driven by falling revenues and an unpredictable regulatory environment. Overall subscriber numbers have declined for the past three months, and three leading operators have reported revenue drops.
Given these headwinds, some industry observers argue the auction’s timing is poor and have criticized the Supreme Court for accelerating the process.
The weak turnout on day one will be viewed by many as validation of complaints about the high reserve prices. It remains unclear how the government will handle unsold regions after the final round of bidding on Wednesday. A protracted series of legal challenges now looks increasingly likely.