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Vodafone may be forced into auctions

Monday, 1 April 2013 - 10:30am IST | Place: Mumbai | Agency: dna

With the government rejecting its plea for extension of licence period, the company has few options left.

The government appears determined to extract its pound of flesh from Vodafone.

Having lost its face over the Rs12,000 crore tax demand slapped on the company and lukewarm response to its spectrum auctions, which yielded just Rs14,000 crore after the second round as against a targeted Rs40,000 crore, it seems inclined to ensure greater success in the next round of GSM (1,800 MHz) auction, whenever that is held.

And Vodafone might just have to pay this time, if it intends to continue services.

To be sure, the company’s plea to extend its licences in Delhi, Mumbai and Kolkata, which account for the bulk of its subscriber base, was rejected by the Department of Telecommunication (DoT) last week.

The licences are up for renewal in April 2014.

Having already shelled out a sizeable amount to win back spectrum in 14 circles in November last year, Vodafone was not keen to participate in the second 1,800 MHz auction – which was to be held this month but has now been postponed indefinitely.

Going by industry observers, Vodafone will most likely contest the DoT refusal in a court of law.

However, considering it has unresolved tax issues, and given that the government is looking to suspend its 3G roaming permits, the telco may feel compelled to participate in the GSM auction, in order to renew its licences for continuing operations in the three key circles.

When contacted on this issue, a Vodafone spokesperson said the company does not comment on speculation.

The auction – whenever it is held – will ensure a market-determined price for the one-time licence and spectrum fee, an analyst said. However, cash-strapped operators are “averse to bidding at the high reserve price for spectrum that they are not even sure of winning in the end”, he said, requesting anonymity.

Incidentally, Airtel’s 2G licences also come up for renewal in 2014.

“This is a game of brinkmanship between the operators and the government,” said Mahesh Uppal, director, Com First (India), a firm dealing in regulatory affairs.

According to him, the government needs Vodafone to participate in the auction for price discovery and is refusing to grant it licences to continue operations in key circles unless it bids.

Yet, if the auction-discovered price is too high, Vodafone would stand to lose and hence would want the reserve price lowered, said Uppal. “Both parties will have to re-negotiate and come to a quick decision, since auctions have to take place next fiscal, before the licences expire in 2014.”

To be sure, the government has cut the auction’s starting price by half, though the operators are still not happy. The government is in a quandary as operators who win spectrum at this new reserve price may have an unfair advantage over operators who had shelled out a higher reserve price in the last auction.

A possible change in government could also lead to further delay in auction and more confusion over spectrum and licences, observers said.

Speaking on behalf of GSM operators, Rajan Matthews, director-general of the Cellular Operators’ Association of India, said the players are not against participating in the auctions, but they need an assurance that they can regain the spectrum at a reasonable cost.

“The government is evaluating options and the court will decide on the matter, going forward. However, it would be best for Trai (Telecom Regulatory Authority of India) to revisit these spectrum issues and come out with a new plan of action,” he said.


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