2G auctions may bad to more litigation

The Union Cabinet’s announcement of the reserve price for 2G spectrum auctions, particularly the dicing of spectrum into slots of 1.25 MHz with a corresponding reserve price of Rs.3,500 crore, points to strong likelihood of several companies that hold a higher amount of spectrum bidding only for multiples of 1.25 MHz in select circles where they need it most. 

New entrants like Uninor, on the other hand, will be required to bid for at least 5 MHz of spectrum, which means their minimum outlay for the auction will be Rs.14,000 crore. 

Insiders say that notwithstanding the fierce public opposition, it is likely that some of the well-funded companies will actually bid for the spectrum. It is the new companies whose licences have been cancelled that may find it difficult to stay in the race. 

According to calculations made by TRAI, which had set a reserve price of Rs.18,000 crore, the price of telephone services would not be adversely affected by the decision to charge companies more for spectrum. But the Cabinet appears to have played it safe. Sam Pitroda, Information Adviser to the Prime Minister, in an interview to a TV channel said, “We have to find a middle path. These two extremes don’t make sense. You can’t give spectrum free today, nor can you charge so much that the operators themselves can’t survive in the long run,” adding, “the telecom sector is not in danger but it is certainly in the stage where we would have to restructure through consolidation.” 

According to COAI Director-General Rajan Mathews, the reserve price would hike tariffs by 25-30% paise/minute and place the industry in an additional debt of over Rs.3 lakh crore. The Association of Unified Telecom Service Providers of India also said the price would lead to a sharp impact on tariffs. 

However Telecom Regulatory Authority of India (TRAI) chairman Rahul Khullar has brushed aside mobile operators’ view that the R14, 000-crore reserve price makes a bad business case and would lead to a rise in tariffs. 

Khullar also dismissed apprehensions that the forthcoming 2G spectrum auction would not receive bids due to the high reserve price, stating that at least three operators would bid. “We have feedback from at least three operators that they would bid,” he said. 

Another company that stands at the crossroads following the Cabinet decision is Idea Cellular, nine of whose licences were cancelled by the court. Its former head Sanjiv Aga said, “This is a violation of the Supreme Court directive. Let’s assume this is not struck down by a challenge. Here the Government is confiscating by auction design a certain number of slots and I think it’s opening itself up to all types of compensation and claims from international and local players. I could never make sense of it.” Hinting that Idea could appeal the Cabinet decision, he said as long as these were proposals they could not be challenged. “But once decisions are taken, they will be challenged and I’m not certain whether they will fly.” 

For the auctioneer has not even been appointed so far, and given the experience of 3G auctions, where the auctioneer has to design the software for an auction — as a first step — that can be done only when the auctioneer knows the detailed terms and conditions. In spite of some preparatory work having been completed by the DoT, several pieces in the run-up to the auctions remain incomplete. This makes it virtually impossible to beat the August 31 deadline. The earliest that the auctions can now be held is more likely in October-December. The Government has already hinted that it would need to approach the Court again for such an extension.

Source: http://cablequest.org/news/telecom-news/item/984-2g-auctions-may-bad-to-more-litigation.htmlSource: http://cablequest.org/news/telecom-news/item/984-2g-auctions-may-bad-to-more-litigation.html