The much-hyped 2G spectrum auction, held in November 2012, witnessed participation from only five players: Telenor-promoted Telewings Communications, Videocon Telecommunications, Idea Cellular, Vodafone India, and Bharti Airtel. While Vodafone won spectrum in 14 circles and Idea Cellular in eight (the seven circles where its licences had been cancelled and in Bihar), Bharti Airtel won spectrum in just one circle (Assam). Both Telenor and Videocon won spectrum in six circles each.
The auction proved to be a major disappointment, eliciting neither operators? enthusiasm nor the targeted revenue for the government. It fetched only Rs 94.07 billion of the expected Rs 400 billion. Further, the auction of CDMA spectrum had to be cancelled as companies withdrew their bids. Also, the GSM spectrum auction did not have any takers for airwaves in the Delhi, Mumbai, Rajasthan and Karnataka circles. The high reserve price set by the government is being identified as the reason for the disappointing auction.
For the unbid airwaves, the Department of Telecommunications (DoT) is mulling over a re-auction possibility in March 2013 at a much lower base price. Meanwhile, as a follow-up to the 2G spectrum auction, DoT has asked all winning operators to pay the required spectrum fee by December 2012.
As per DoT?s notice, operators have to pay at least 33 per cent of the 2G spectrum fee by December 2012. The remaining amount can be paid in 10 installments after a moratorium of two years. In case the operators fail to deposit the spectrum fee, the earnest money deposited prior to the auctions will be forfeited.
DoT will also adjust the entry fee paid by operators for 2G licences in 2008 (which were subsequently cancelled by the Supreme Court order in February 2012) against the total fee to be paid by operators for acquiring spectrum in this auction. It will offset the entry fee amount (Rs 16.5 billion for the pan-Indian licence) against either the initial payment made by operators or the gross amount that the operators will pay over time, based on their preference. Accordingly, DoT will calculate the installment amount to be paid by each operator.
To help operators finance their spectrum acquisition, the Reserve Bank of India (RBI) has allowed the successful bidders in the 2G auction to refinance their domestic loans through long-term external commercial borrowings (ECBs). As per RBI?s notification, successful bidders who make upfront payment for the award of 2G spectrum through rupee loans taken from domestic lenders will be eligible to refinance such loans through long-term ECBs under the automatic route.
Moreover, there has been a relaxation in the ECB norms in the context of the large fund outlays required to be paid directly to the government within a limited period of time.
RBI has further notified that the winning bidders could use short-term foreign currency loans as bridge finance without seeking approval from higher authorities. The companies can then replace these short-term borrowings with long-term ECBs, provided the ECB is raised within a period of 18 months from the drawdown of the bridge finance. RBI added that mobile operators will be able to borrow from their parent companies without any limit, provided the latter own minimum 25 per cent equity in the local company.
The relaxations with respect to the ECB liability-equity ratio, percentage of shareholding by the parent, refinancing of rupee loans and bridge finance are a part of a special dispensation applicable only to the successful bidders in the upcoming 2G spectrum auction.
Meanwhile, prior to the 2G spectrum auction, the cabinet had given its approval to charging a one-time fee for spectrum held beyond the prescribed limit. GSM operators with more than 6.2 MHz of spectrum would be required to pay a retrospective fee for the airwaves from July 2008. This move is expected to fetch revenues worth Rs 310 billion for the exchequer.
However, Bharti Airtel, Vodafone and Idea Cellular are contesting this decision and have written to Prime Minister Dr Manmohan Singh in this regard. The letter signed by Vodafone India?s managing director (MD) and chief executive officer (CEO) Marten Pieters, Bharti Airtel?s CEO (India and South Asia) Sanjay Kapoor and Idea Cellular?s MD Himanshu Kapania states, ?There is no justification or legal basis for any unilateral imposition of any additional charges in the form of a one-time fee for spectrum held by operators, which has been legitimately paid for in the form of higher revenue share.?
It also states that any policy related to charging operators for the already allocated spectrum should be formulated on the basis of bilateral renegotiations. Such bilateral renegotiation of contracts may be considered only on a prospective basis, where a one-time fee may be offered in return for migration to a uniform rate spectrum charging regime.
Given the lukewarm response to the recently concluded 2G spectrum auction and the issues related to the one-time fee, a re-auction and the price of reserve bids, the empowered group of ministers on Telecom headed by Finance Minister P. Chidambaram will again meet various stakeholders to address their concerns.
