Move aimed at reducing cost, improving profits; could invite CCI’s attention

In a move that mirrors a cartel, GSM players will jointly boycott next month’s spectrum auctions, leaving the Russian conglomerate Sistema’s Indian mobile phone unit the sole company to file its application to participate in the bids for CDMA spectrum.

This is bad news for the Finance Ministry, which had set a revenue target of Rs. 30,000 crore from the sale of mobile airwaves, which was intended to be a critical component in containing the fiscal deficit.

On Monday, last date for submission of applications, the GSM players stayed away on the ground that the reserve price was too high and that there were issues in the refarming process which needed legal resolution before a realistic pricing and, thereby, bid strategy could emerge.

This move delivers three objectives: It limits competition, allows the GSM players to fix supply-side pricing by forcing the government to reduce the reserve price and is aimed at improving industry profits by jointly forcing a reduction in spectrum cost, which is the most important factor of production. By their very character, all telecom companies offer homogenous services such as voice and data and represent a small number — 5 or 6 sellers — in the market.

The telecom industry’s bidding strategy is in sharp contrast to its behaviour in 2010 when the same companies bid over Rs. 1 lakh crore for 3G and BWA spectrum.

A senior DoT official told The Hindu that no renegotiation of terms was possible since this would involve issuing a fresh NIA or Notice Inviting Applications. “We need to take stock of the implications of this strategy by GSM players. Under the directions of the Supreme Court, we have already issued a notification for a third round of auctions and whatever rethinking has to be done can only take place at that stage.”

According to him, the implication of this is that roughly 305 MHz of spectrum will be put on the block in the third round of auctions, placing a downward pressure on price. This move could attract the attention of the Competition Commission.