After the two relatively unsuccessful attempts to sell 2G spectrum in November 2012 and March 2013, it was a case of third time lucky for the government as it hit pay dirt with the latest round of auctioning that ended on Thursday. With all the spectrum on offer in the 900 MHz band sold out and 80 per cent of that offered in the 1800 MHz band sold for a total of Rs.61,162 crore — which is substantially higher than the reserve price — the government is patting itself on the back for what it calls a big success. Yet, this has to be viewed in the backdrop of a couple of issues. First, this auction was critical for two of the biggest telecom operators in the country, Bharti Airtel and Vodafone, because their licences are set to expire later this year, and to continue in business they had to pick up spectrum irrespective of the price. So, an element of desperation was built into the bidding from the moment it began, pushing up valuations. With a new entrant in the form of Reliance Jio Infocomm queering the pitch by adding to the competitive element, it is not surprising that the final values of the 900 MHz spectrum for Delhi and Mumbai were 105 per cent and 72 per cent more than the reserve price. Of course, it could be argued that this is exactly how markets work and as the owner of the spectrum the government is entitled to get the best price.
That brings us to the second point. The auction can be truly termed as successful only when telecom services develop at affordable prices for the consumer. If the high spending by operators in the auction forces them to raise tariffs, the objective will be lost. This is exactly what happened in the 3G arena where companies outbid each other paying big bucks for spectrum, only to discover that the market was not willing to absorb the high tariffs. The net result is that 3G services have not taken off in a big way. The signals on tariff now are mixed, with the operators complaining about the money they had to cough up for the spectrum — which they are bound to anyway — but they have stopped short of saying that tariffs will rise. The competition in the market will probably ensure that tariffs do not shoot up immediately, at least for voice telephony. Groaning as they are under high debt levels, it is unlikely that telecom companies will be able to convince banks to lend more to them now; banks are under pressure from the RBI anyway as they are over-exposed to the sector. It remains to be seen how these companies manage their funds. Yet, all things considered, the bottomline is this: the auction and the money put on the table by the operators prove, yet again, the attractiveness of the telecom market in the country, notwithstanding the fact that it is already 900 million connections strong.