The second round of 2G spectrum auction slated for March 2013 suffered a major setback as the government was forced to cancel the auction of airwaves in two key bands with GSM operators refusing to participate in the sale. There was just one bid application for CDMA spectrum (800 MHz band), from Sistema Shyam TeleServices Limited (SSTL). The operator, which operates in India under brand MTS, bid for spectrum in only eight circles, instead of the 11 it had originally planned for. It did not bid for the Mumbai, Maharashtra and Uttar Pradesh (East) circles, (which account for its 1.5 million customers) as according to the company, the combined base price for these three circles was more than 35 per cent of the total reserve price for the 11 circles it had earlier thought of bidding for.

After the auction, SSTL’s footprint will span only nine circles – Delhi, Kolkata, Gujarat, Karnataka, Tamil Nadu, Kerala, Uttar Pradesh (West), West Bengal and Rajasthan (where its licence was not cancelled).

Considering the tepid operator response to the 2G spectrum sale in November 2012, where nearly 60 per cent of the GSM spectrum was unsold (including that in Mumbai and Delhi), the government decided to reduce the base price for the March 2013 auction. For GSM spectrum (1800 Mhz), the base price was brought down by 30 per cent to Rs 28 billion per MHz and for CDMA spectrum (800 MHz) by 50 per cent to Rs 36 billion per MHz. However, even the reduced reserve price did not elicit any interest from operators, except SSTL.

Clearly this is a big blow to the government, which now has unsold airwaves worth over $7.9 billion. Telecom operators are not likely to bid for spectrum unless the minimum reserve price is reduced considerably.

Despite allegations of possible cartelisation, operators maintain that their current high debt levels and weakening cash flows have made it impossible for them to raise money for buying spectrum. According to Rajan Mathews, director general, Cellular Operators Association of India, “Telecom operators shunned the March 2013 2G spectrum auction because of the high reserve price and prevailing legal issues in the sector. We are requesting the government to scale down the reserve price for the 1800 MHz band by 50 per cent, and to treat both the 900 MHz and the 800 MHz bands with the same rationale.” Currently, the matter is under consideration with the empowered group of ministers, led by finance minister P. Chidambaram, which will take a final call on the issue.

The spectrum auction washout will impact new operators such as Norway’s Telenor and Russia’s Sistema the most. In addition, the Supreme Court’s order in February 2013, which mandated that all operators that did not win spectrum in the November 2012 auction to shut down services immediately in circles where they do not have licences, has compounded their problems.

Telenor’s Indian arm, Uninor, for instance, was left with no choice but to shut down its operations in the Mumbai circle. “We have pursued every alternative possible to continue our operations in Mumbai until the new auction takes place. However, the court has ordered an immediate closure of operations and a temporary licence is also unavailable. Unfortunately, we have no choice but to follow the court’s order and close down our network in the circle immediately,” says Sigve Brekke, managing director of Uninor.

Meanwhile, Uninor’s majority stakeholder Telenor, participated in the 2012 auction through a new entity, Telewings Communications, and won spectrum in six circles – Maharashtra and Goa, Gujarat, Uttar Pradesh (East and West), Bihar and Jharkhand, and Andhra Pradesh. The company, however, did not bid for the Mumbai circle as it found the reserve price too high. Telenor is now in the process of transferring Uninor’s business to Telewings Communications in the six circles where it won spectrum. The company plans to sign roaming agreements with other operators to ensure that all Uninor customers get seamless connectivity when travelling to Mumbai.

On the other hand, SSTL did not participate in the November 2012 auction. The company had filed a curative petition in the Supreme Court contesting the latter’s decision to cancel its licences in 21 circles in February 2012. According to SSTL, it was the only company that had applied for CDMA spectrum and thus the contentious first come, first served criterion did not apply to it. However, SSTL’s curative petition was rejected by the Supreme Court in early 2013. The company, therefore, had to participate in the 800 MHz spectrum auction to continue operating its CDMA services in the country.

As of December 2012, SSTL had over 14 million wireless subscribers and more than 3,000 employees. So far, the operator has made investments of over $3.2 billion in the Indian telecom market. Consolidating its operations in the country, SSTL has chalked a go-forward strategy, which includes shutting down its operations in 10 circles – Assam, Andhra Pradesh, Bihar, Himachal Pradesh, Haryana, Jammu & Kashmir, Madhya Pradesh, the Northeast, Odisha, and Punjab.

According to Vsevolod Rozanov, president and chief executive officer, SSTL, the company will now focus on its data-centric voice-enabled strategy in select circles. “The aim is to look at life beyond all the uncertainties and build an even stronger brand in India,” says Rozanov.