The biding process for the fourth cellular operators licence has not been a tame affair with public interest litigations stymieing the process and questions being raised about the bid amounts being too low. While the issues have been finally resolved and the bidding concluded, what could have been done to avert thee mess? More important, what impact will this have on the privatization process? We present the views of some telecom experts on these issues…

With hindsight, was the bidding process appropriate? Could it have been done differently?

Amit Bisaria
Well, it can be argued why the auction-style system for GSM spectrum and not for all other services. But other than that it seems to have been a satisfactory process, bringing in the multiple auction process and yet limiting the number of rounds. Excessive rounds of bidding and artificial bid values are avoidable in a low teledensity and developing environment such as India.

Senior Official, DoT
TRAI had suggested a “multi-stage informed ascending bidding process”. This was designed and adopted for the first time in DoT. It has been very successful and has been considered as an improvement over the single-bid process. This has been appreciated all around and therefore, was very appropriate.

Anil Nayar
The licenses have been awarded based on the tendering process structured as the “multi-stage informed ascending bidding process”. The bidding involved a prequalification round followed by three rounds of financial bidding. The highest price quoted by the prequalified bidders in the first financial bidding was the reserve price for the subsequent round. The process of elimination was followed in the first and second rounds of financial bidding, that is, the lowest bidder of the first round was not allowed to participate in the second round if the number of bidders was four or more and the lowest bidder of the second round if the number of bidders was three or more. There could not have been a better way of awarding licenses in a scenario where there are a large number of players, each keen on getting the circles as per their strategic plans.

Mohit Saraf
The bidding process for the fourth cellular operator comprises a prequalification round followed by three rounds of financial bidding. Such a multi-stage bidding process may carry with it the threat of exposing the financial bids and the strategy of each player, thus cautioning its competitors in turn. It could have been done differently by reducing the number of rounds in the multi-stage bidding process. The advantages of this process have been the generation of realistic bid prices as opposed to exaggerated and inflated prices leading to renegotiation of the licence fee at a later date, a realistic reserve price, and a blend of the fixed fee and revenue-sharing concepts. Further, in terms of the guidelines of the bidding process, a single promoter with more than 10 per equity in two entities could not bid for the same circle, thus preventing the creation of monopolies.

Ravinder Singhania
The telecom sector is one of the fastest growing sectors, in fact, it can be better described as a sunrise sector. The telecom sector’s growth is mainly attributable to the cellular business, which has been on a high. The bidding process was in fact designed to induce competition into this service area. Licensing for the fourth cellular operator was a boon for the several private telecom groups who wanted an all India presence. The only thing that the government should have done before initiating the bidding was to resolve the pending issues, which in a way would determine the entire revenue model of the bidders for the fourth licence.

Do you think that eventual bids were too low, as was being alleged by the Chennai petitioner? Was the three-round process adequate in terms of ensuring the highest possible price?

Amit Bisaria
No, I don’t think the bids can be called low. You must consider the background of the issues the cellular industry has faced; the revenue-share structure introduced by the New Telecom Policy (compared to the lump sum bids in the original licenses) and the fact that there were a limited number of serious players in the bidding race for the fourth licence. Also, in some way, the fixed price spectrum availability under the FSP (fixed service provider) licence would have acted as a reality check on bid values.

Senior Official, DoT
No, the bids cannot at all be called low. We are getting approximately Rs.16.33 billion for 17 licenses as entry fee, that also upfront. In the past, we got about Rs.58 billion for 38 licenses over a period of three-and-a-half years. That was in a situation where duopoly of private operators was granted. This time, it is the fourth operator in the 1800 Mhz band who will be facing greater competition. Three rounds was the right number for the best price.

Anil Nayar
We must realize that in a small market the bids for the fourth cellular licenses could not have attracted any higher bids. Tariffs today are at an all-time low and world over the strategy adopted by the entrant has invariably been pricing. With the prevailing tariffs at an all-time low and the lowest in the world, the price strategy is not feasible. This means that the entrant will have to match the delivery levels of the incumbent from day one. Simply stated, this means huge investment, high marketing spends and better service delivery. Add to that the uncertainty over the WLL and interconnection issues, and of course spectrum limitations. Moreover, it must be realized that the payments had to be made upfront.

Mohit Saraf
Obtaining the highest possible price may not, in the long run, be an appropriate measure for a successful bidding process. The ultimate aim should be of obtaining a sustainable price to make the telecom sector an investor-friendly and service-oriented sector. Also, lower prices are a natural corollary of enhanced competition. One must not forget that this scheme is not just based on fee but is a combination of both fee and revenue sharing. Despite the fact that the market is getting fragmented due to the increasing number of private operators and that cellular rates have been on the verge of decline, the fees quoted in the bids have matched the government’s expectations.

Ravinder Singhania
Despite positive trends, the policy flip-flop is virtually chocking the sector. It is evident from the fourth round of bidding for cellular licenses that, apart from one or two companies, the bidding has been conservative, something that was not expected. The fact that the government has not yet clarified various outstanding issues, including WLL, can be one of the reasons. The eventual bids may seem to be low; nevertheless, the “multi-stage informed ascending bidding” did ensure the highest possible price.

Given the divestment possibilities with MTNL and VSNL, should they (along with BSNL) be prevented from entering markets where one of the others is present on the basis of common government ownership? What happens after the divestment?

Amit Bisaria
This is a complex issue. While the common ownership or “promoter” clause does apply, it is also true that given the risks in the Indian telecom market related to regulation, revenues, convergence, tariffs, etc., an integrated business model is believed to be better and less risky. Having backbone and access services under the same roof can also reduce revenue share. Since these PSUs are expected to compete in the marketplace as stand-alone entities, limitations on their business boundaries will eventually affect their viability.

There are two basic solutions. Either the Government of India (GoI) should chart a clear timetable for their privatization (including MTNL and BSNL) and then implement it quickly, or it should merge them under one strategic management entity representing GoI ownership.

There may still be policy is interpreted in such a manner that the proposed GoI minority holding after privatization continues to trigger the common promoter clause.

Senior Official, DoT
Disinvestment has nothing to do with allowing the PSUs (MTNL, BSNL and VSNL) to bid for the fresh cellular licenses. To ensure fair competition, a condition was laid that commonality of interest of any stakeholder in two different companies in a service area for one service is not allowed. This condition was applied uniformly for private as well as public uniformly for private as well as public sector companies. After disinvestments of VSNL, the government will still retain 26 per cent equity. The private sector already had full opportunity for competing for the fourth cellular licence, so there is no problem.

Anil Nayar
The conditions have been laid down by DoT and they clearly state that two companies in which the shareholding of the promoter exceeds 10 per cent cannot be allowed to submit two bids at the same time. As per the clauses of NTP, 1999, there will be a third operator in all the circles, which will be a government owned organisation.

Mohit Saraf
State-owned companies already have a presence in each circle by being the third cellular operator. Presence as a fourth cellular operator may have the effect of tilting the advantages in favor of the government in a given circle. This may adversely affect the comfort level of the private players since state dominance would have a direct impact on the level playing field in the telecom sector. On the other hand, there are a few instances in the developed world where as a precursor to privatization, a government company providing telecom services was successfully split into two government companies that operated simultaneously and in competition with each other, thus raising the general level of performance and services. Presently, the scheme of disinvestments does not propose to do away with the government equity; it only involves a reduction in the equity stake of the government and handing over management control to a professionally run strategic partner. Therefore, despite disinvestments, the state would continue to have a stake in the companies and the threat of a state monopoly in a given circle would persist.

Ravinder Singhania
The guidelines for the issue of licenses to cellular mobile telephone service providers stipulate that a promoter company cannot have stake in more than one bidding company for the same circle. It is a policy decision which is the government’s domain. It is for the government to decide where it wants to operate and to what extent. The probability of these entities to be divested and freed from the government’s direct control in future, to my mind, does not entitle them to any special concession.

How will this controversy affect the telecom liberalization process?

Amit Bisaria
If you mean the fourth GSM licence, this controversy in itself seems to have passed with the award of licenses. The issue that will probably rear its head again going ahead, will be the competition with limited mobility networks under basic licenses, and the question on the one hand of a level playing for GSM operators and on the other, artificial regulatory boundaries on the growth of lower cost limited mobility services on a mass scale.

Senior Official, DoT
There is no controversy as far as the government is concerned regarding induction of the fourth cellular operator.

Anil Nayar
The process of awarding the licenses has been somewhat delayed, but not for long. As far as we are concerned, there is no further controversy.

Mohit Saraf
This controversy would definitely have an impact on the liberalization process since it will not send out any investor-friendly signals. It would also have the effect of sending out signals of a confused economy where the process of liberalization is filled with frivolous and “interested” litigations and impediments. The ultimate aim of the privatization process is to increase competition which in turn, would enhance the level of services to be rendered, thus benefiting the end-users or consumers. On the other hand, the clear standoff DoT in not allowing any government companies to bid for the licence would send out pro-privatization signals.

Ravinder Singhania
There seems to be no controversy at all. Liberalisation is a process of reducing restrictions and simultaneously encouraging competition. In fact, the whole process seems to be set up in order to induce intense competition in the cellular segment. As new players step in, market dynamics are likely to take new twists and turns. Further price cuts and the introduction of even more value-added services are likely. This definitely promises a better future for cellular subscribers.