India Kicks off 2G Telecom Auction

February 4, 2014 Posted by India Briefing Reading Time: 3 minutes

NEW DELHI – Mobile phone companies began placing bids yesterday for second generation (2G) telecommunications licenses exactly two years after the Supreme Court abruptly cancelled scores of telecom licenses in a landmark ruling. Telecom companies will also now begin paying 5 percent of their revenue as an annual fee rather than a 3 to 8 percent fee range.

At a special hearing on Sunday, the Supreme Court cleared the final hurdle for the auction by refusing a stay demanded by Bharti Airtel, Vodafone, Loop and Idea Cellular Ltd.

The auction that commenced yesterday is the first since a landmark February 2012 Supreme Court ruling on the so-called “2G Spectrum Scam” that resulted in the cancellation of 122 telecom licenses awarded to 22 operators in 2008.

In what had been labeled India’s biggest corruption scandal in history, a number of high-ranking Indian officials were placed on trial for illegally undercharging mobile telephone companies for frequency allocation licenses – allegedly costing India US$40 billion. This ruling and the subsequent decision that public officials could indeed be prosecuted for corruption ultimately laid the framework for the approval of India’s first independent anti-corruption agency last year.

The 2012 verdict was estimated to affect about 5.5% of connections used by mobile phone customers, or more than 50 million Indian subscribers, using Unitech-Telenor, Videocon, SingTel, Loop and Etisalat. The aftermath of the scandal resulted in the destruction of about half a million jobs in the telecom sector and placed the Indian government in three international arbitration cases with foreign investors from Russia and Norway (Sistema and Telenor).

Two earlier attempts in 2012 and 2013 to sell 2G licenses failed after telecom firms boycotted them claiming the starting prices were inflated and restrictions too stringent. Since then, the government has cut bandwidth prices, eased rules for the trading and sharing of bandwidth and lowered spectrum-usage charges to attract more bidders.

Eight firms are currently participating in the bid including Bharti Airtel, Vodafone, Reliance Jio Infocomm, Idea Cellular, Telewings, Reliance Communications, Tata Teleservices and Aircel according to the Department of Telecommunications.

Bharti and Vodafone must bid successfully to continue operations in Delhi, Mumbai and Kolkata after their bandwidth-usage rights expire later this year.

The pan-India licenses on auction will cover 22 regions including the metro service areas of Delhi, Mumbai and Kolkata.

The 2G auction is expected to fetch India’s government at least US$1.8 billion after sales of faster third-generation (3G) licenses in 2010 fetched nearly US$15 billion.

The next round of auctions are scheduled to be held in FY2015.

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