The 3G auction may spell good news for the government, but the successful players now have a tough job at hand. They need to visibly show that the money spent on acquiring the new licenses was well spent. Even before the auction had started, several analysts tracking the sector had raised the prospect of over-bidding – or winner’s
curse. This was the risk that companies may bid too high for 3G spectrum for the risk of losing their high value customers – and may lose because of that.
Post the auction, some of those fears seem to have come true. The final price of pan-India 3G spectrum was Rs 16,751 crore — almost five times the reserve price of Rs 3,500 crore. In its statement to the media after the auctions, Bharti Airtel said that “We would like to point out that the auction format and severe spectrum shortage along with ensuing policy uncertainty, drove the prices beyond reasonable levels.” In terms of value, Bharti Airtel has been the most successful player and will have to pay the government Rs 12,295 crore.
Another of the players, Tata Teleservices, said that “TTSL did pursue the major metros in the country, but decided to drop out of the bidding when the sheer outlay made these a winner’s curse.”
Predictably, the three telecom players with 100 million plus subscribers – Bharti, Vodafone and Reliance, have been the most aggressive in bidding for circles. Between them, the three firms will be paying the government a little more than Rs 32,000 crore. These firms are wary of losing their high value subscribers in case they can’t offer 3G services. Companies are also hoping that high value 3G services will provide them a way out of the destructive price wars – where some players have offered rates as low as 1 paisa a second. In a few days, the auction for broadband wireless access spectrum is set to start in a few days, where 11 players will bid for 2 slots. Prices are likely to exceed expectations here as well.