Post-2G spectrum fallout: Auction-based approach, sectoral consolidation

Development also considered a prime reason for the first wave of toxic assets that hit the banks.

Written by Pranav Mukul | New Delhi | Updated: December 22, 2017 11:59:04 am
Post-2G fallout: Auction-based approach, sectoral consolidation It was pegged that, back then, telecom lending comprised nearly 3 per cent of the banks’ loan portfolios.

Even as unearthing of the 2G spectrum allocation case 10 year ago set the ball rolling for policy changes such as a shift in the Centre’s stance to allot airwaves through auctions, and a consolidation in the sector — which is still a work in progress — the development is also considered to be one of the prime reasons for the first wave of toxic assets that hit the banks. It was pegged that, back then, telecom lending comprised nearly 3 per cent of the banks’ loan portfolios.

The number of operators offering mobile services in the country before the Supreme Court cancelled 122 telecom licenses in February 2012 was 16, and the number of companies in the sector that is 11 today could soon become five if the proposed mergers and acqusitions go through – which would be in line with developed telecom markets across the world. This consolidation spree is considered to be one of the ways in which the telecom sector in India was impacted as a result of the decade-old allegations over irregularities in the issuance of telecom licenses and 2G spectrum. The 2G trial court, on Thursday, may have acquitted all the accused in the criminal cases pertaining to the alleged irregularities, but the policy changes and decisions taken in the aftermath of the allegations has impacted India’s telecom sector in a number of ways.

Also Read: Telecom shares rise sharply post 2G case verdict

These include the Centre’s shift in stance to allocate airwaves through auctions that led to high cost for operators, and the consequent debt situation – the roots of which pre-date the current non-performing asset scenario shadowing the country’s financial services sector today. The first come first served policy adopted by the UPA government to allocate licenses, in fact, was a part of the National Telecom Policy of 1999, which proposed to increase teledensity in the country. This was reflected in the telecom subscription data in the report issued by the Comptroller and Auditor General (CAG) of India. The total number of wireless connections in the country grew from 2.28 crore to 26.19 crore in 2008, and to 58.43 crore in 2010. As of October 31, 2017 the total number of wireless subscribers was 117.82 crore.

Even as the Supreme Court’s 2012 order pertained to a different aspect of the case, the decision had an impact on banks that considered writing off their loans given to licensees given that the lenders were exposed to the sector in form of loans provided as guarantees for acquiring the licenses.

Apart from this, the government also started allocating spectrum by letting the market decide the price of the natural resource instead of allotting it to telecom operators bundled with their licenses. As per the CAG report, the government, by allocating the 122 licenses for 2G services, and 35 dual technology licenses in 2008 realised revenues of Rs 12,386 crore. Compared with this, six editions of spectrum auctions from 2010 to 2016, operators have committed to spectrum worth almost Rs 2.63 lakh crore, of which spectrum worth nearly Rs 1.76 lakh crore has been auctioned by the current NDA government.

The Centre’s pursuit of higher revenues through auctions, which is seen to be a direct result of the CAG’s observations on the loss of revenue through administrative allocation, has also resulted in spectrum becoming costlier, one of the factors cited by telecom players analysing their financial condition. According to estimates, the telecom sector is in a combined debt of over Rs 5 lakh crore. The case, in which charges against several bureaucrats were also framed, also impacted how the auction process was designed to allocate spectrum at market discovered prices. The latest example was seen during the 2016 auction where, despite a clear lack of intent from the industry, the highly priced spectrum in the 700 MHz frequency was put under the hammer. In its internal pre-auction estimates, even the DoT did not expect the 700 MHz spectrum to be fully sold.

Throughout the auction, not a single bid by any operator was placed. Furthermore, on account of the high debt in the sector, earlier this year, the Reserve Bank of India red-flagged the telecom industry and asked banks to review their exposure to the sector. An inter-ministerial group was formed, headed by DoT Secretary Aruna Sundararajan, to suggest measures for reducing financial stress in the sector.

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