New Delhi, Nov. 12: Spectrum lost much of its sparkle ahead of Diwali as mobile telephony companies collectively stumped up bids worth a paltry Rs 9,224.75 crore for 2G radio waves that were put up for auction today as part of a Supreme Court-mandated process.
The bids for spectrum in the 1800Mhz band totalled less than a fourth of the Rs 40,000 crore that the government has been hoping to raise from the auction.
Telecom companies � mired in debt and locked in rate wars � have been reluctant to fork out big bucks for radio waves in 1800Mhz, which isn't as super-efficient and cost-effective as the 900Mhz band that the big boys like Airtel and Vodafone have hogged as early entrants in the field of telephony.
Two lucrative but costly circles � Delhi and Mumbai � did not receive any bids on the first day. Two other circles were completely ignored: Rajasthan and Karnataka.
Bids had been invited for eight blocks of 1.25 Mhz each in the country's 22 telecom circles. The base price for one block of spectrum in Delhi had been fixed at a daunting Rs 693.06 crore and in Mumbai at Rs 678.45 crore. The prices hadn't moved in these two circles at the end of seven rounds of bidding that began at 9am.
Back in February, the Supreme Court had scrapped 122 licences that disgraced telecom minister A. Raja had handed out to eight cherry-picked telecom players in a controversial process that had raised Rs 12,386 crore.
The Supreme Court had ordered the auction of all the 471Mhz of spectrum that had been doled out then. However, the Centre has put up just 271Mhz of spectrum in this round, apparently holding some of the radio waves in hand in order to bump off Airtel and Vodafone from the lucrative 900Mhz band and "re-farm" them to 1800 Mhz when their 20-year licences come up for renewal in 2014.
The 900 and 1800 Mhz bands are used by GSM telephony players.
There was no bidder for pan-India spectrum for which the government had set a base price of Rs 14,000 crore for 5Mhz of spectrum in all 22 circles. The base price was more than seven times what carriers had paid in 2008.
Only five telecom companies are involved in the auction for 1800Mhz: Bharti Airtel, Idea Cellular, Vodafone and two newbies in Videocon Telecommunications and Telewings, a subsidiary of Telenor of Norway.
The government received a blow when the only two bidders � Tata Teleservices and Videocon -- dropped out of the race for spectrum in the 800 Mhz band that is used by CDMA players. Both said the base prices were too high.
"The total quantum of revenue bid is for a little over Rs 9,200 crore (at the end of the fifth round)," telecom secretary R Chandrashekhar said.
Today's bidding is in stark contrast to third generation (3G) spectrum auctions that were held in April 2010. Back then, the total bids on Day 1 had touched almost Rs 16,000 crore for pan-India coverage with Mumbai and Delhi witnessing a 13 to 16 per cent increase over the base price. Overall the government earned Rs 70,000 crore from sale of high speed 3G spectrum.
However, analysts point out that the highly sought-after 3G cannot be compared with 2G.
Experts said the muted response to 2G was because of the high base price and the decision cap each block on offer at just 1.25Mhz. Existing licensees � Airtel, Idea Cellular and Vodafone � cannot bid for more than two blocks of 1.25Mhz if they already hold some spectrum in that band in a particular. New entrants must bid for at least four blocks in each circle. These restrictions have also sapped bidding interest.
Moreover, telecom companies are waiting to buy spectrum in the more efficient 900Mhz band that will be sold next year. The market price discovered through sale of spectrum in the 1,800Mhz band is likley to be used to set the reserve price for sale of radiowaves in other bands, including the 900Mhz band.
Existing telecom operators like Airtel, Vodafone, Reliance and others have to pay a one-time fee for holding spectrum beyond 4.4 megahertz (MHz) -- 2.5 MHz in the case of CDMA players -- based on the market price of spectrum determined by the auctions.
Analysts have also halved their projection for proceeds from the auction to around Rs 20,000 crore.
"The limited amount of spectrum on offer, which is contrary in our opinion to the Supreme Court ruling, was guaranteed to have a very detrimental impact on the auction. We said the high reserve price would ensure that limited players come into the bid, indicated extremely muted bidding and averred that there would be several circles that would have no bidders," said COAI general secretary R.S. Mathews.
Last week, Sunil Bharti Mittal, chairman of Bharti Airtel, the country's largest telecom company, had predicted that the auction would be completed on the first day itself because of the high base price.
After seven rounds of auction on the first day, bids were reported for 98 blocks across 18 circles out of the 176 blocks on offer in 22 circles. In the case of 16 circles, bids have closed at the reserve price. However, there was intense bidding for spectrum in UP (East) and UP (West).
Telecom companies will get another chance to bid for circles that remain unsold after the initial rounds of bidding. The government is yet to decide on its course of action if the auction with chunks of spectrum unsold in some circles.
The e-auction or online auction is being conducted simultaneously for all 22 circles via a simple computer interface. The auction will end when the number of bidders equals the number of slots in a given circle.
Bids have been confirmed for nine blocks in Uttar Pradesh (East), 10 in UP (West), eight each in Gujarat and Bihar, seven in Assam, six each in West Bengal, Haryana, Orissa, JandK, Madhya Pradesh and North-East, five in Maharashtra, four each in Andhra Pradesh, Calcutta and Tamil Nadu, and one each in Himachal Pradesh, Kerala and Punjab.
Last week, the Supreme Court pulled up the government for not complying with its February 2 order to auction all of the 2G spectrum that was freed up after it cancelled the 122 licences. "Prima facie, we find you (Centre) aren't carrying out the (February 2) order but playing with it," the court had said.
The government has to file an affidavit by November 19 to explain why it is not implementing the Supreme Court's 2G order in toto.