Column : Sanity flows from 2G auction

The tepid response to the auction of 2G spectrum has many lessons for various actors linked to the telecom sector, including the Comptroller and Auditor General (CAG). One important message for the telecom companies is that auction does not always drive up costs, as has been propagated by the industry. This time around, the auctions actually helped in bringing some sanity to the sector bedevilled by all kinds of problems. The auction-discovered price led to a re-rating of major telecom companies, with big broking houses raising the future earnings potential of these companies as reflected in the increased target stock price of the dominant telcos. Not many new players rushed to bid for spectrum at the all-India level this time, thus limiting the possibility of further fragmentation of the telecom market.

Bharti Airtel CEO Sanjay Kapoor rightly observed that the current auction actually signals a phase of consolidation in the telecom sector, which in recent years witnessed a veritable race to the bottom with too many players trying to grow their subscriber base by reducing prices to rock-bottom levels. The economics of the telecom sector is such that the average return on capital is probably close to zero and the industry as a whole is reeling under a massive debt of over R1.85 lakh crore. Given this scenario, and the fact that the voice market is saturated at about 900 million subscribers, it was hardly a surprise that the auctions got the response they did.

To give you a comparative idea, in the irrationally exuberant era of A Raja (2007-08), when every telecom operator was seeing a pot of gold at the end of the rainbow, there was demand for over 525 telecom licences, all in a queue which Raja played around with. In the current auction, hardly 30 licences were sought! How times have changed! In 2008, the telecom subscriber-base in the country was just 230 million and growing at over 100 million a year. Today, it is saturated at about 900 million and recent months have seen a negative growth in the telecom subscriber-base.

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