What are the 2G auction scenarios possible?

The matter of spectrum allocation to telecom companies has always been mired in controversy. The Department of Telecom (DoT) is once again undertaking the task of auctioning telecom licences and airwaves.

There is already a huge outcry on the astronomical reserve or floor price recommended by watchdog Telecom Regulatory Authority if India (Trai). On Monday Norway’s Telenor has already made it clear that it will not participate in the auction if Trai’s recommendations are taken in its “current form”.

DNA did a survey on several scenarios that could emerge from it and this was what we got:

Scenario 1
Nobody turns up. In 2003, when DoT tried to allocate spectrum through auction nobody turned up because the condition was poor. It was a case of once bitten twice shy for most operators who had burned their fingers in 1995 bid after bidding very high to acquire licences. Some of them went bankrupt and had to surrender their licence. The government recovered the spectrum from them and tried to re-auction these licences because the industry had practically come to a standstill. The reserve price was nominal.  It was during this time that the government decided to go for first-come-first-served (FCFS) policy because the government could not find anyone who would take spectrum through an auction.

Scenario 2
Limited number of bidders turns up and cherry-picks and decides to shun unviable options. They pick few premium slots and don’t do the rest. This could find the government trying to offload unwanted slots.

Scenario 3
People bid ungodly amount that could push them into financial problems as has been the case in 3G and in 1995. They could bid euphorically for something and then have delayed remorse. That same scenario could have a sub-scenario where people bid outlandishly and are left with almost no money to roll out the networks to acquire customers to provide affordable services. This could lead to extremely high premium on services. In this scenario the consumer loses.

Scenario 4
You could have operators sitting on the sidelines but sending the message that they are game but will wait and watch to see what emerges from auction. They may try and see what they can do through mergers & acquisitions (M&As). They would let somebody else buy spectrum and acquire it from them if decides to sell on lower valuations because the bidder does not want to take huge loss due to his wrong decision.