Spectrum auction setback for govt

It is clear that the government’s calculations on the largest-ever sale of spectrum it put on offer went way off the mark, and it may be time to rethink its strategy of raising funds to bridge its current account deficit. It cannot afford to be penny wise and pound foolish as it goes about trying various ways to raise funds to shore up its finances. This is a serious business. A government spokesman said, of course, that it was satisfied with the outcome, but this is a kind of bravado or face-saving tactic. That it could sell only 12.5 per cent of spectrum in terms of value indicates a faultline in its offer prices.

The 700 MHz band it offered was the most expensive and most efficient, and accounted for about 70 per cent of what it was supposed to collect, but remained unsold. As there were no takers at the base price fixed, an astronomical Rs 11,465 per Mhz, it led to the gaping hole it was confronted with. The Centre had hoped to net Rs 5.6 lakh crores but got just Rs 65,789 crores, of which a mere Rs 32,000 crores will be available upfront. The rest will come in instalments. This is 43 per cent short of the Rs 56,000 crores estimated from auctions in the Union Budget for this fiscal. This excludes licence and spectrum usage charges.

Days before the auction there were indications that the base price fixed was too high, specially as the telecom companies have a huge collective debt of Rs 3.80 lakh crores on their books. So it was natural that they bid for only what they needed for 4G and 3G services to remain efficient. With no business compulsions on the horizon, they left the 700 MHz untouched. Some reports indicated the government will sell the 700 MHz band at a reduced rate after some years. This is very strange as it means it will sell for less, even though the fiscal deficit may be even larger by then.

The result of this auction, which turned out a damp squib as only 80 per cent in the 1800 MHz and over 60 per cent in the 2500 MHz band were bought, can only benefit the telecom companies with deep pockets like Bharti Airtel, Vodafone and Idea.

They together account for over 90 per cent of aggregate spends at the auction. They will need to shape up to face tough competition from Reliance Jio, that has upturned the whole telecom scenario. Its flagship programme is to offer voice free when other companies get most of their revenues from voice. This situation can lead to greater consolidation in the sector, acting out the Darwinian theory of the survival of the fittest in the 21st century.