2G auction well short of govt goal

NEW DELHI/MUMBAI Thu Nov 15, 2012 12:04am IST

A passenger talks on a mobile phone as she waits outside the airport in New Delhi February 1, 2006. REUTERS/Adnan Abidi/Files

A passenger talks on a mobile phone as she waits outside the airport in New Delhi February 1, 2006.

Credit: Reuters/Adnan Abidi/Files

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NEW DELHI/MUMBAI (Reuters) - India, battling a ballooning fiscal deficit, has raised less than a quarter of its 400 billion rupees target in the auction of second-generation (2G) mobile phone airwaves seen as too pricey by carriers.

The low prices paid will provide respite to a debt-ridden industry suffering from heavy loans taken to pay for a previous sale of 3G mobile airwaves, even as intense competition keeps tariffs low and margins suppressed.

The auction - used by most subscribers - has been mired in controversy, with carriers saying the starting price was too high and that the limited amount of spectrum on sale created artificial scarcity.

The government raised 94 billion rupees from an auction that ended on its second day, telecommunications minister Kapil Sibal said. Four telecom zones, including the expensive Delhi and Mumbai circles, saw no demand.

Unsold airwaves will be auctioned again later, he said.

"All in all, a big embarrassment for the Indian government, but one could see it coming," said Prashant Singhal, telecom industry leader, at Ernst and Young India.

India's first sale of 2G mobile phone airwaves by auction came after the Supreme Court ordered the cancellation of permits granted to eight carriers in a scandal-tainted process in 2008. The order comes into effect in January.

The muted response this time - in contrast to a 2010 sale of 3G airwaves that raised more than $12 billion - cast uncertainty on another spectrum auction plan for next year and a planned surcharge on existing airwaves.

Norwegian group Telenor (TEL.OL) won airwave space in six zones in the auction, retaining part of the operations it would otherwise have lost in January.

Idea Cellular (IDEA.NS) won airwaves in all seven zones in which it was set to lose its permits.

While India's more than 900 million mobile phone customers make it the world's second-biggest market after China, intense competition among 15 carriers means wafer-thin margins.

The competition will shrink from January, leaving seven players with nationwide presence.

CUTTING THE DEFICIT

The auction dealt a blow to government efforts to cut the fiscal deficit and avoid losing the country's investment grade credit rating. India is also likely to miss its target of raising $5.5 billion through sales of shares in state companies.

It was banking on proceeds from the auction and an auction-determined surcharge on airwaves to help control a deficit economists see touching 5.8 percent of gross domestic product in the year to March.

"Managing fiscal deficit would be a tough challenge now," Jagannadham Thunuguntla, head of research at SMC Investments and Advisors. "If the government cannot spring a surprise on the divestment front, then it would be double whammy of sorts."

The government had set a bid starting price of 140 billion rupees for 5 megahertz of 2G airwave space on offer in all 22 zones. The base price was more than seven times what carriers paid in 2008.

The winners in the auction have the option of making a third of the payment upfront and the balance over 12 years.

Videocon Telecommunications, part of Videocon Industries (VEDI.NS), whose 2G permits are to be revoked, won airwaves in six zones.

Mobile phone market leaders Bharti Airtel (BRTI.NS) and the local unit of British company Vodafone (VOD.L), which were not required to bid in auction, won additional airwaves in one and 14 zones, respectively.

(Additional reporting by Sumeet Chatterjee and Devidutta Tripathy; Editing by Mark Potter and Dan Lalor)

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