Staring at 2G gap, telecom cos go for generation leap

“We would like to point out that the auction format and severe spectrum shortage along with ensuing policy uncertainty, drove the prices beyond reasonable levels. As a result, we could not achieve our objective of pan India 3G footprint in this round,” said a terse Bharti Airtel Ltd, even after winning 3G spectrum in 13 out of the 22 circles in the just concluded auction.

The “ensuing policy uncertainty” referred to was nothing but the telecom regulator’s May 11 recommendations on 2G that have left established operators such as Bharti fuming.

While there was little doubt that the bids for the 3G spectrum were going to be high, the recommendations of the Telecom Regulatory and Development Authority (Trai) on 2G did their bit too in pushing up the bids with the result that the auction did not throw up any pan-India operator.

Bharti and arch rival Reliance Communications Ltd got the most circles — 13 each.

The 2G recommendations walked into controversy from the moment they were released. While there are several points in Trai recommendations that have pricked the GSM operators, the key areas of concern that led operators to bid even higher were the limits imposed on the quantum of spectrum an operator can get in a circle and the benchmarking of 2G spectrum prices against those of 3G.

The case of Bharti Airtel is even worse, with the company having little or no hope of getting any additional 2G spectrum.

“Trai’s 2G proposals did drive the 3G bids higher,” said Ashish Basil, partner, transaction advisory services at Ernst & Young. “If a company is going to be penalised for excess 2G spectrum beyond 6.2 MHz and made to pay as per prices discovered by the 3G auction, it will obviously think —- why not pay for 3G itself —- and offer some different, more value-added service that has a higher margin,” he said.

An official with another multinational advisory firm very curtly said, “If for the price of a cake (3G), you have a choice between cake and chapatti (2G), what will you go for? Cake, right?”

Bharti Airtel, Vodafone-Essar and Idea Cellular, and necessarily in that order, are going to be the worst affected if Trai recommendations on 2G are accepted.

BK Syngal, an industry veteran and advisor with Delhi-based legal consultancy firm, Dua Consulting, sees the correlation between 2G and 3G spectrum prices but does not share the view that Trai’s 2G norms had an impact on 3G auction bids. “Nobody forced anybody to bid higher. It’s entirely their assessment of the market potential that made them bid higher,” he said.
NW18