High price key reason for 2G spectrum failure: COAI

High price key reason for 2G spectrum failure: COAI New Delhi: The telecom industry on Wednesday blamed the poor response to the 2G spectrum auction on the high reserve price set by the government.

"First and foremost among the many causes, is the clear recognition that an artificially high reserve price that bore no congruence to market realities was the key reason for the failure," GSM industry body COAI said in a statement.

The second factor is that the majority of the bidders are actually operators who had lost their licences and are compelled to participate in the auctions despite the high prices and the limited availability, simply in order to sustain their customers, businesses and to protect their years of investments, it said.

"Finally, the limiting of spectrum available for auction, which contrary to the Supreme Court ruling (to auction the entire spectrum related to the quashing of the impugned licences), added to the sense of uncertainty and fear of irrational bidding for many potential bidders," COAI said.

The artificial scarcity created by holding back spectrum combined with the high reserve price dampened any enthusiasm for aggressive bidding by the operators, it added.

"The auctions have concluded on the exact note as predicted," Cellular Operators Association of India (COAI) said.

It had stated that the high reserve price would ensure that there would be limited players coming into the market to bid, and had also indicated that there would be extremely muted bidding with several circles that would have no bidders at all.

"The results of the auction clearly indicate that the reserve price was completely off the mark, with none of the interested operators also not pitching for the circles that they had committed to participate publically," Prashant Singhal, partner in member firm of Ernst & Young Global, said.

The government's plan of Rs 40,000 crore has fallen flat and they would now need to go back on the drawing board with respect to 800 MHz and Delhi, Mumbai and Karnataka on 1800 MHz to figure out the market driven price, he added.

COAI said the root of the problem lies in the procedure adopted by the government in executing the auctions.

It, however, said, that auction is the "best and the most transparent way to determine the allocation and market price of a resource as rare as spectrum for commercial use".

COAI said only about 35 percent of the total spectrum (only 27 percent in terms of reserve price) put up for auction was actually bid for. So the amount of freed spectrum now held by the government (413 MHz) is a waste of precious national resources, it added.

Vodafone India, which won bids in 14 circles, said it had participated in the 2G auction to secure additional spectrum.

"Vodafone India has always maintained that auctions are the best and the only transparent method for allocation of spectrum. Our decision to participate in the 2G auction was to secure additional spectrum in many circles where we have not received any new 2G spectrum since 2008. Our customers grew in that period from 60 million to 153 million today," Vodafone India said in a statement.

Vodafone added that the entire spectrum that is currently unused (800 MHz, 900 MHz and 1800 MHz) should be put on auction at the same time with a "much lower reserve price" and the auction should be held simultaneously for all the service areas.

"Additionally, to ensure that there is a level playing field, all operators should be allowed to bid for all spectrum. Spectrum usage should be technology agnostic and the choice of technology should be left to the operators as market forces will decide which is best suited to meet customer demands," it said.

This will result in effective participation and bidding for spectrum, thus leading to a wider service offering with better quality of coverage for customers, while government will be best placed to meet its fiscal demands, it added.

"The government should also follow TRAI's advice to abandon staggered spectrum usage fees which are higher for operators who require more spectrum. This does not make sense if spectrum is bought in an auction and is paid for already," the statement said.

Spectrum usage fees should be flat and only represent the charge for administering the spectrum, Vodafone added.

Sectoral regulator Telecom Regulatory Authority of India (Trai) has advised to put this at one percent of revenues.

PTI