The Union Cabinet’s announcement on Friday 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 the 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.

There is speculation whether the Mukesh Ambani group will be interested in bidding for a fresh slot of 5 MHz start-up spectrum, given that it already holds pan-India BWA spectrum.

On bank financing, State Bank of India Chairman P. Choudhary, while speaking to some sections of the media, confirmed that the SBI would lend monies to companies which were well placed and had a good track record.

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.” He said “the telecom sector is not in danger but it is certainly in the stage where we would have to restructure through consolidation.”

On condition of anonymity, one operator expressed comfort with the reserve price, while another remarked, “this is extortion, not auction.” 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 (AUSPI) also said the price would lead to a sharp impact on tariffs.

Senior counsel Harish Salve, who unsuccessfully defended several of the companies whose telecom licences had been cancelled by the Supreme Court in February, said, “It [reserve price] appears to be very high. I don’t see much difference between Rs. 18,000 crore and Rs. 14,000 crore. The sense I have gathered by speaking to clients and the kind of impact this is going to have, I only hope their fears don’t come true and we are looking at a huge setback in India. I hope there are takers, but I don’t think there will be very many takers.”

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.”

On the other hand, Telenor, all of whose licences were cancelled and is fighting its partner, Unitech, in courts, said it was unable yet to come up with any new position on the auction but urged the government to do everything for the auction to meet the August 31 deadline.

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.

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