Spectrum sale could end up a missed call

The Centre’s budget plan to garner Rs58,000 crore through auction of 2G and 4G spectrum is fraught with overexpectation, said analysts.

According to the North Block roadmap, the money is supposed to come from a combination of factors such as operator licence fee renewals, sale of excess 2G spectrum above 6.2 MHz bandwidth and the 2G and 4G (700 MHz) auctions.

First up, they said, there is no timeline for the auctions in sight.

Secondly, it’s also not clear how many spectrum slots in the 700 Mhz band will be up for grabs.

“The recurring fee for licence renewals, which is usually 5-6% of an operator’s annual revenue, was Rs16,500 crore this fiscal. This may go up to Rs19,000 crore in the next due to the spectrum auctions, and the industry revenue is also expected to be higher by 15%. However, total revenues raised will depend on how much spectrum can be auctioned and whether the auctions will take place this year at all,” said an industry expert, preferring not to be named.

The Supreme Court has ruled that the 2G licence auctions should take place in not more than 4 months. The Telecom Regulatory Authority of India (Trai) believes it will take more than 400 days to complete the process.

The government only added to the confusion when it announced that the auctions for 700 MHz spectrum bandwidth would take place in the second half of this year.

If this comes to pass, there could be a clash of auctions, which sends operators into unknown territory in terms of strategies.

Mahesh Uppal, director, Com First (India), a consultancy firm dealing in regulatory affairs, said both auctions should take place this year, as there is both demand and supply for spectrum. “The process is progressing well.”

“At the most, there may be some delay in the auctions — like 2G spectrum sale may take 8-9 months instead of 4 months,” believes Uppal.

Sandip Sabharwal, CEO, portfolio management services, Prabhudas Lilladher Group, believes 2G auctions will take another 6 months. “Since the government is hard-pressed for cash, it will definitely push for 2G auctions this year itself.”

But Sachin Salgaonkar, Piyush Mubayi and Paras Mehta, analysts with Goldman Sachs, minced no words in a recent note.

They said although the government is focusing on 2G auctions, rather than 4G, the former is not expected to generate any substantial material proceeds even if it is conducted this year.

“The only serious operators whose licences have been cancelled like Uninor and Idea, and operators like Bharti Airtel and Vodafone might participate in it. But they may bid selectively for 2G only in circles where their licences are up for renewal. Greenfield operators are unlikely to bid sensing inability to break even,” the said.

Others are less sanguine. Rishi Maheshwari, analyst with Enam Securities, feels 2G auctions may not happen this year at all.

“If the 400-day need is considered, they may take place only after the 4G auctions. Which would mean the Rs58,200 crore mop-up from this may not be achievable this fiscal.

“I believe the Rs40,000 crore for disinvestment will be the same, and will be raised solely from the 4G auctions, which should take place by the end of this year,” he wrote in a note.

The Goldman quartet believes the money can be raised only if 4G auction happens next fiscal. Selling excess spectrum and the 2G auction cannot bring in the monies they felt.

However, 4G auctions could be delayed also because of the underdevelopment of the 700 Mhz ecosystem as well as the de-linking of spectrum from licences, with spectrum renewal expected only every 10-20 years, and low interest in 4G among new operators.

In 2010, the government managed to reap a windfall of Rs67,000 crore from the 3G auctions. It may not be as lucky in the next fiscal.