Flawed execution was the problem in 2G auction: COAI

Flawed execution was the problem in 2G auction: COAI
New Delhi:

The Cellular Operators Association of India (COAI) today said the results of the 2G auction have been exactly what the industry had predicted. "All along the COAI maintained that the reserve price was guaranteed to have a detrimental impact on the auction," COAI said in a release.

"The root of the problem lies in the procedure adopted by the government in executing the auctions," the release added.

Saying that it is in agreement with the Supreme Court that auction is the best and the most transparent way to determine the allocation and market price of a resource as rare as spectrum for commercial use, the GSM industry body listed the following reasons for the tepid response to the auction:

An artificially high reserve price that bears no congruence to market realities is the key reason for the failure.

The majority of the bidders were operators who have lost their licences and were compelled to participate in the auctions despite the high prices and the limited availability, simply in order to sustain their customers, businesses and to protect their years of investments.

The limiting of spectrum available for auction, which contrary to the Supreme Court ruling (to auction the entire spectrum related to the quashing of the impugned licences), added to the sense of uncertainty and fear of “irrational bidding” for many potential bidders. The artificial scarcity created by holding back spectrum, combined with the high reserve price, dampened enthusiasm for aggressive bidding by the operators. In fact, only about 35% of the total spectrum (only 27% in terms of reserve price) put up for auction was actually bid for. So, the amount of freed spectrum now held by the government (413 MHz) is a waste of precious national resources that could have been put to good use in driving tele-density and innovation in the telecom sector in the country. Any price discovered through this auction cannot be termed as market determined price for any future decisions due to: (i) The complete spectrum put to the auction could not be sold; and (ii) It was distressed buying to save the investments already made by the operators whose licenses have been cancelled.

The so-called “liberalisation of spectrum” to justify high spectrum prices was another red herring as, in our opinion, all spectrum held by GSM operators has already been liberalised as per the existing licence conditions. On the issue of no bidders for CDMA 800 MHz spectrum, we believe that if the government had harmonised the spectrum to international standards and allowed for extended GSM to be provided on the 800 MHz spectrum, there certainly would have been bidders.

The weakened financial plight of all operators that were faced with declining margins and profitability, could hardly justify the additional financial burden of one time spectrum charges and spectrum re-farming charges proposed by the government, and all these factors combined to provide for a subdued bidding effort in the auctions.