Two-stage spectrum auction process is best option: KPMG

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Two-stage spectrum auction process is best option: KPMG

Jaideep Ghosh, Partner at KPMG Advisory Services spoke to CNBC-TV18 about the latest developments in the telecom space with respect to the modalities of spectrum auction.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » ALSO READ See latest News about Bharti Airtel See previous management interviews See what other Experts & Brokerages are saying about Bharti Airtel

Jaideep Ghosh, Partner at KPMG Advisory Services spoke to CNBC-TV18 about the latest developments in the telecom space with respect to the modalities of spectrum auction.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: Lets start by talking about eligibility. Bharti says keep out those players who did not meet their roll out obligations, AUSPI says keep out those players who are currently holding on to excess spectrum, the new telecom operators say our licenses were squashed we should get the right of first refusal, there should be a two stage auction, where do you stand on eligibility?

A: At this point of time, we are in such a situation that certain decisions taken by the regulator or the government and the outcomes of that will perhaps shape the telecom sector, how does it perform over the next decade. So it is that kind of an important situation.

I would think that the auction mechanism eligibility and base price needs to be balanced to match the expectations of all stake holders. Who are the stake holders? Firstly the government's own objectives of tele-density enhancement and so on and so forth, and of course exchequer's expectations from auctions. Second would be subscribers. Subscribers shouldn't be paying much more because of certain decisions taken now....

Also read:  Telcos divided on modalities

Q: Let me ask you direct question. Do you think it is in favour of the telecom industry to have limited participation or full participation that companies like Vodafone and Idea are pitching for?

A: I was just coming to that. In terms of telecom operators, I would classify not in terms of new or incumbent, I will classify it bit differently. A) Those operators whose licenses in specific circles or pan-India have got quashed in the recent Supreme Court verdict. That includes Idea Cellular and Tata Teleservices who otherwise have several licenses operating in other circles. B) Totally fresh and new entrance who don't have any presence in India so far and want to enter the market and C) I won't use the word incumbent, but those operators who have got more than the prescribed limit of spectrum that has been recommended for, almost decided by minister Sibal yesterday.

In terms of who should be eligible, I think a fair chance needs to be given to the fresh investors and to those whose licenses got quashed in the recent verdict, and then subsequently for those who have already got the prescribed spectrum in select circles.

Q: There also seems to be unanimity of some sort of as far as the two-stage auction process is concerned Telenor, S Tel, the companies where licenses stand quashed, those are the ones pushing for a two-stage auction. Do you believe that makes sense?

A: Two-stage personally looks okay to me, but everyone would respond based on what is their situation at this point of time. I would think keeping it only limited to those telecom operators who licenses got quashed and totally the fresh investors is one way to look at it. In the first stage I would think it is good to open it up to those whose licenses got quashed, fresh investors, as well as those existing operators who do not have the prescribed spectrum of 8 MHz x 2 GSM in all circles and 2x10 MHz for Delhi and Mumbai circles. I think they should also get a chance to bid for in the first round.

Q: Another area where most people seem to agree is that this auction process should not follow the model of the 3G auction process. A lot of people felt that, that distorted the market. They are saying that unlike the 3G auction process where there were dark bids, where it was ascending, the 2G auction process should not follow that mechanism, your take?

A: I think all this is being said in hindsight because the government expected Rs 35000 crore and the bids came-in in the range of Rs 68000 crore. The bids were made by conscious business houses based on their valuations and based on what they thought was the value for getting a 3G license in certain circles. It was purely a decision of the bidders to bid that high. So, I think the base price can be anything. Even if it's Rs 1651 crore or Rs 3500 crore, bids should be reasonable based on the business justification and valuation. If folks have bid at that kind of value, it's based on their business. So, I don't think there is anything wrong per se with the bid concept or the auction concept.

Q: Given the financial constraints of most telecom companies as well as what we are seeing happen from a regulatory risk point of view as far as this sector is concerned, do you believe we are going to see a repeat of the 3G auction?

A: I would think the biding if it is in two stages and like I mentioned, to the new operators etc, I would think it should be far more cautious than what we saw in the 3G auction, that's what my take would be.