Government will boost earnings by auctioning spectrum

The Supreme Court judgment cancelling 122 licences issued in 2008 might prove to be a blessing in disguise for the government and old operators as the former would reap rich dividends by auctioning spectrum while the latter would benefit from adding more subscribers and boosting its earnings. However, it could also lead to job loss if the new players decide to exit the telecom sector altogether.

Following the old ‘first-come, first-served' policy in 2008, then Communications and IT Minister A. Raja, now in jail for his alleged involvement in the 2G spectrum scam, gave away 122 licences to eight operators, which included six new ones, at a throw-away price of Rs.1,658 crore for a pan-India licence.

In its audit report, the Comptroller and Auditor General of India (CAG) had stated that the government could have earned between Rs.57,666 crore and Rs.1.76-lakh crore had the spectrum been given via a market-driven process, while it realised only Rs.12,386 crore in 2008.

But now the fresh auction of over 500 Mhz of 2G spectrum (cumulative in all 22 circles) would help the exchequer earn massive revenue. However, the revenue that the government would earn would depend on the demand-supply situation and the ability of companies to bid in view of the prevailing financial environment. Notably, the government surpassed all expectations when it earned over Rs. 67,700 crore by auctioning 3G spectrum in 2010.

However, the old operators like Bharti Airtel, Vodafone and BSNL that have not been affected by the judgment would benefit by adding those subscribers that will exit their operators who got licences in 2008. Thanks to the mobile number portability (MNP), over 7-crore subscribers of these eight operators can now move to any other operator.

Among the 122 licences in January 2008, Uninor was allotted pan-India licence (22 circles), while Loop, Videocon and Sistema-Shyam got 21circles, Etisalat-DB 15, Idea Cellular nine, S Tel six, and Tata Telecom three.

As on December 31, 2011, Uninor had the highest number of subscribers among affected operators at 3.63 crore subscribers, followed by Sistema-Shyam at 1.5-crore, Videocon at 54-lakh, S Tel at 35-lakh, Loop 32 lakh and Etisalat 16-lakh subscribers. A majority of these subscribers are likely to port to old operators, thus helping them earn more revenues.

But one worrying factor would be loss of jobs if any of these companies decide to shut shop. For example, Uninor is said to have 17,500 workforce and 22,000 partners, while the Sistema-Shyam employees' strength is over 3,500. It would also put the brakes on proposed investments that companies were planning to expand their operations.

However, on the policy front, the Department of Telecommunications (DoT) will now have some cushion while finalising two crucial points – exit policy for operators and merger and acquisitions (M&A). The fresh auction of spectrum is likely to see non-serious players exiting the telecom sector and also reducing the urgency of mergers and acquisition for streamlining the sector which has over a dozen players, the highest in the world.