Telcos in unison against high reserve price: Kunal Bajaj

The response to 2G auction has been muted. The government received bids worth more than Rs 9,200 crore on the opening day of auction for 2G mobile phone spectrum.

In an interview to CNBC-TV18, independent telecom analyst Kunal Bajaj says it is inline with expectations. "Telecom operators have come out in unison and basically said that the reserve prices are indeed very high for almost all of the circles," he adds. Below is the edited transcript of his interview on CNBC-TV18. Q: It is turning out to be a damp Diwali, as far as the government and the auction is concerned. Only a little over Rs 9,000 crore is what the government has got on day one and not much more is expected on Wednesday, when it resumes. Was this inline with your expectations? Is this worse than your expectations or better than your expectations? A: It is inline with expectations. We expected that it would end on the first day itself. One or two circles are still outstanding with some demand beyond what the actual supply is. Therefore, the auctions would go into the second day, but really it is a lot less than the Rs 40,000 crore that the government expected. It is unfortunate that it has gone in that direction, from the government’s point of view. But from the telecom industry’s point of view, it is very positive because all of the telecom operators have come out in unison and basically said that the reserve prices are indeed very high for almost all of the circles. Q: Who do you blame for this? The telecom industry from day one has been saying the reserve price is too high, the government has been saying we are pretty much following the ground work that’s been laid out by the Supreme Court. It is not about revenue maximisation, but we cannot go the other direction, we have to peg it to what happened in the 3G auction. Who would you really blame for? What is a mess actually? A: I think it is difficult to point fingers at any specific party. But I think the entire fallacy, which has been set up around this reserve price, is potentially the largest problem here. All the expectations about the government revenues of Rs 40,000 crore and one-time fees that would follow from that were actually pegged on this one reserve price number. But, in reality, the telecom operators were saying all along that the reserve price itself is too. For a proper auction, they should have actually set the reserve price maybe artificially too low because once people start bidding and they get into the momentum and they see the competitive environment, then that would have actually led to a lot more interest in auction. But if from day one itself no one is bidding then regardless of where you set the reserve price, nobody is threatened that the competition is going to acquire a spectrum that they won’t have access to. That in itself creates the psychological comfort zone and then nobody feels like they need to bid. _PAGEBREAK_ Q: In terms of surprises, no bidders for Delhi, Mumbai, Karnataka, Rajasthan. Eastern UP is the only one we actually saw competitive bidding take place? A: I completely agree with that. I would have expected that the new entrants - Uninor’s newer avatar and Videocon, would have actually gone for the metros. I was expecting that if they do want to look at playing a serious role, the metros would have been a key part of that jigsaw puzzle. I am not exactly sure what they have in mind. Looking at the way the bidding is panning out; I believe we need to expect the auctioneer to bring in upto 100% participation for all the circles based on the points. At the end of the day, even if the new entrants don’t want to participate in the metros, then maybe what the telecos are expecting is that once the auction closes, there maybe a price revision to allow some of the bidders to get back into the game, maybe even at lower prices.

Q: Do you believe that there is going to be a realistic possibly, that the government maybe forced now to rethink and there will be a revision of prices? Or do you believe that that’s fraught with all kinds of landmines?

A: There is a lot of things that are linked to this auction. There is the one-time payment. There is the future 900 MHz auctions, the future 1800 MHz allocation for refarming. This was really supposed to be step one of a series of events that were going to take place in terms of how to price spectrum. And if you don’t have any bidders in a number of circles then the government can’t really stand on two legs and say that this is the real price for spectrum in that circle. Therefore, link a lot of other prices to that benchmark as well. So, something will need to be done to discover what the real market price is because only then can we move forward with benchmarking and pricing all the spectrum that’s still to come.