Auction fiasco betrays India's policy crisis

Caroline Gabriel/Wireless Watch
20 Nov 2012
00:00
News
Commentary

The vast country's 2G policy has been a disaster under successive governments, leaving operators struggling for capacity to meet rising demand, and consumers with poor quality of service.

The capacity crunch in simple 2G services was worsened by the corruption scandal that led the Supreme Court to revoke 122 licences, originally awarded in 2008, earlier this year.

And while there was much discussion about how the second auction of this spectrum could be structured to make the Indian 2G market more profitable and competitive, in fact the government could not resist the lure of easy revenues and set high reserve prices. The result was that almost 58% of the spectrum still remains unsold and unused, and the business case for a 2G-only model be-comes ever more unconvincing.

Three of the five companies which did bid in the auction rerun, Vodafone, Idea Cellular and Bharti Airtel, already hold GSM and 3G spectrum (and 4G in Bharti's case), and so were seeking additional capacity in key regions.

This is a workable approach but does not further regulator TRAI's goal of boosting competition. Some of the previous winners from the 2008 process, such as Russia's Sistema, decided not to participate this time, and no new bidders emerged. Just two of those left with no GSM spectrum after the Supreme Court ruling, Videocon and Telenor, decided to try again and secured licences this time around.

However, 42.4% of the spectrum on offer – in 1.25MHz blocks in the 1.8-GHz band – went unsold, including all the pan-India licences and those for the largest metro areas, Delhi and Mumbai.

The government had hoped for the highest prices for these blocks, but operators said the base price had been set too high. For instance, the national franchises carried a reserve price of 140 billion rupees ($2.5 billion), seen as commercially unfeasible in a market where ARPUs are ultra-low and higher value data services tend to run on the new 3G networks.

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