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India's telecom auction raises 25 percent of target

Penny MacRae
Two men check their mobile phones while standing in front of an advertisement for a cellular network in Mumbai in September 2012. India's government announced on Wednesday it had raised one-quarter of what it expected from an auction of mobile spectrum that telecom industry critics said had been overpriced.

India's government announced on Wednesday it raised just one-quarter of what it expected from an auction of mobile spectrum -- a setback industry critics blamed on excessively high pricing.

Prime Minister Manmohan Singh's government hoped to raise 400 billion rupees ($7.2 billion) from the sale of second-generation (2G) spectrum to help close a gaping budget deficit.

Instead it collected 94 billion rupees in the auction that ended after two days when offers dried up.

"This is a market and that is how it plays itself out," Telecom Minister Kapil Sibal said after the sale was over.

The Cellular Operators Association of India branded the sale a "failure" that it attributed in a statement to an "artificially high reserve price that bore no congruence to market realities".

Fierce competition has eroded profits of India's once-vibrant telecom industry which has also been buffeted by regulatory upheaval.

The auction was held after the Supreme Court earlier this year cancelled 122 licences for eight firms, saying the 2008 sale of the permits had been tainted by corruption that cost the treasury as much as $39 billion in lost revenues.

A slew of people including a former telecoms minister, senior bureaucrats and corporate executives, have been charged with corruption over the 2008 sale that has ballooned into one of India's biggest-ever political scandals.

The tepid response from telecom companies to this week's auction contrasts with the 2010 sale of faster third-generation (3G) mobile airwaves that lasted more than a month in which the government raised over $12 billion.

Critics said the government-set starting price of 140 billion rupees for a slot embracing all of India's 22 telecom zones -- over seven times what companies paid in 2008 for 2G bandwidth -- was too costly and deterred bidders.

Two foreign operators -- Norway's Telenor and Britain-based Vodafone Group -- and three domestic firms -- Bharti Airtel, Idea Cellular and Videocon Industries -- took part in the auction.

The sale was key for Telenor's Indian unit and Videocon, which both had their airwaves taken away, as well as for Idea Cellular, seven of whose licences were revoked.

Telenor won spectrum in the six most populous zones but gave up its wider India footprint and said it expected its Indian operations to break even in 2013. Videocon won permits in six zones while Idea got back licences in the seven it lost.

Bharti and Vodafone were unaffected by the court order but wanted more bandwidth to improve service as firms battle to sign up new clients in the world's second-largest cellular market.

Vodafone won spectrum in 14 circles while Bharti got spectrum in one, according to provisional results on the telecom ministry website.

A number of telecom firms stayed out of the auction because of the high base price including Russsia's AFK Sistema, which had its Indian spectrum cancelled by the Supreme Court. It is appealing the court decision.