Companies & Sectors
Spectrum auctions are crucially flawed, says Kapil Sibal
 Trust an ex-telecom minister who is also a legal eagle -- an attribute he shares with current incumbent Ravi Shankar Prasad -- to point out a "crucial flaw" in the on-going spectrum auctions.
 
Kapil Sibal says this is "a government of hiccups, that doesn't think things through and has come up with a flawed auction design".
 
He says his mobile phone drops calls on an average of four times during the few kilometres journey from his Supreme Court office to his current home in central Delhi. 
 
"This didn't happen earlier" when he looked after the ministry, Sibal told IANS. "It is because telecom infrastructure is severely over-stretched, and with the government taking all the money upfront, there will be even less available for building infrastructure," he said.
 
The crux of the problem, he says, is in the current auction where high base prices may mobilise large revenues for the government and may be seen as successful. But there is a flip side to this in the form of resource commitments by companies to buy scarce spectrum and the added pressure on an acutely stressed larger financial system. 
 
"The telecom sector is hugely in debt to the extent of Rs.3.4 lakh crore. Now, in paying for the high spectrum prices, there'll be no money for investment in infrastructure," the former minister said.
 
For instance, state-run State Bank of India has lent around Rs.40,000 crore to telecom companies. 
 
In the current ongoing auctions, Idea Cellular is said to have already committed Rs.30,000 crore. It is followed by Vodafone, at around Rs.24,000 crore, and Bharti Airtel at Rs.21,000 crore. They are among the eight companies that are bidding for spectrum.
 
"With such massive commitments, the companies won't be able to pay back to lenders, who then have to restructure these loans. Such bids would lower return on equity and force firms to raise call costs," Sibal said. 
 
The load on the larger system can be gauged from the fact that non-performing assets (NPAs), or distressed debts, of public sector banks rose to 5.33 percent of total advances in September 2014, from 4.72 percent in March 2014. 
 
Stalled projects have been adding to banks' NPAs and the finance ministry's latest Economic Survey says that, as in December-end, these amounted to Rs.880,000 crore-worth. 
 
Analysts estimate a drop in earnings of up to 33 percent for Bharti Airtel and Idea Cellular in the 2017-18 financial year, owing to the cost of renewing their airwaves in the latest auctions.
 
He pointed out how, instead of consolidating defence and commercial spectrum into discrete segments, the government is selling tiny slices of bandwidth across a wide range, thereby creating scarcity and driving up prices. 
 
It comes down to a question of models and of choices being made, Sibal says. 
 
"Auctioning will bring you more revenues, but it is not the only model. A government can also not choose to take all the money upfront and opt for production-sharing model over time, like there is for oil exploration," he said. 
 
Underlining that a government's main objective should be to increase production and generate employment, Sibal said the industrial policies of many Indian states are based on giving land at subsidised rates for industry.
 
"If auction is the only model, why don't they auction school land... Punjab is a good example where for industrial development, a lot of land was given at very subsidised rates.
 
"There are many countries where resources are not auctioned. The Chinese boom wouldn't have happened if the government didn't give land free to enterprises so that they could invest fully in production," Sibal said. 
 
Lamenting that the days of cheap mobile telephony were over, which could put paid to the country's mobile telecom revolution, Sibal said these auctions had sacrificed public good, which is the objective of governance.
 
"I have never said that the government will not earn more by auctions, of course it will, but that cannot be the objective. The government has to work to achieve the maximum benefit to help achieve the ends of public good."

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COMMENTS

Suketu Shah

3 years ago

Nice joke by Sibal.

Auction of telecom spectrum concludes after 19 days
After 19 days of rigorous bidding, the auction of airwaves for telecom operators concluded Wednesday, with officials initially placing the figure of cumulative bids at over Rs.100,000 crore.
 
The auction was conducted for 800 MHz, 900 Mhz, 1800 MHz and 2100 MHz covering both mobile telephony and broadband, including 4G.
 
Till Tuesday, the government had received cumulative commitments of Rs.109,000 crore from the eight telecom operators in the fray -- Reliance Communications, Reliance Jio, Bharti Airtel, Vodafone India, Tata Teleservices, Uninor, Idea Cellular and Aircel.
 
A reserve price of Rs.3,423 crore per MHz was fixed for 800 MHz frequency, Rs.3,399 crore for 900 MHz band and Rs.1,425 crore for the 1,800 MHz band. The government also fixed a reserve price of Rs.3,511 crore per megahertz for the frequency for 3G spectrum.

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Our immediate target would be to gain 15%-20% market share: Saurabh Sarkar
Saurabh Sarkar joined MCX Stock Exchange (MCX-SX), the country's newest full-fledged bourse, as its managing director (MD) and chief executive officer (CEO) in February 2014. Mr Sarkar, former MD and CEO of United Stock Exchange of India, had earlier worked with global financial services giants like Credit Agricole, Standard Chartered Bank, Calyon and ANZ Grindlays Bank. His goal is to improve participation and volumes, of the renamed Metropolitan Stock Exchange of India Ltd (MSXI). 
 
Moneylife (ML): Since MCX-SX is making a new beginning, what are your plans to improve participation from investors, mainly retail investors and increase volumes?
 
Saurabh Sarkar (SS): Yes, indeed, it is a new beginning. Our new name ‘Metropolitan Stock Exchange of India Ltd’ (MSXI) will soon come into use. With this, we will leave our past behind and will focus on building the business. The Exchange has created dedicated business development teams to focus on various segments of market participants, namely, member brokers, domestic banks / institutions and foreign portfolio investors, corporates and retail clients. We believe, this focused approach and continuous dialogue with market participants would help us to build sustainable business. Further, the Exchange is also working on certain products which will be new to Indian markets and investors will find them interesting to trade.
    
ML: Have you set any target in terms of volumes, or market share, for MCX-SX, over the next three years?
 
SS: We have set our internal targets from a long-term point of view and also decided our priorities. However, our immediate target would be to gain 15%-20% market share in the currency futures segment soon. Currently, we have around 10%. Further, recent announcements by the Reserve Bank of India (RBI) which has proposed higher exposure limits in exchange traded currency derivatives (ETCD), without having to establish underlying exposure up to $15 million in US$/INR per Exchange, and placed the aggregate at up to $5 million equivalent per exchange, would give us the much required boost. The extension of market timing up to 7.30pm will be another major advantage.
 
The Exchange is also enjoying rising volumes in the interest rate futures (IRF) segment over the past few weeks. RBI has also decided to permit stock exchanges to introduce cash-settled IRF contracts on 5-7-year and 13-15-year G-Secs. So, in the days to come, there will be a lot of activities in this segment too and the Exchange is well-poised to benefit.    
 
ML: What is the membership base of MCX-SX at present? Do you think lower costs in the price-sensitive options segment would help you generate volumes or you would refrain from reducing prices?
 
SS: The Exchange has over 900 registered members. We have been receiving new membership applications too. We are really thankful to all our members who helped us in sailing through our difficult times. We would like to focus on bringing a lot of real users/ hedgers to our platform which will help in making our platform liquid and vibrant rather than getting into any price wars with competitors.
 
ML: You received approval from the Security and Exchange Board of India (SEBI) to launch fresh contracts in currency futures, currency options, interest rate futures and equity and index derivatives. Will you be launching any new product? If yes, do you have any timeline in mind?
 
SS: As I mentioned, we have a long-term plan in place. As you may be aware, currently, the Exchange is in the process of reaching out to its existing as well as new investors for fund infusion. This is expected to be completed soon. After this, we will start implementing our plans one by one. However, the groundwork related to our plans / strategies has already been initiated and market will soon hear new announcements from us.  
 
ML: You would also require substantial funding for launching new products and making the Exchange run seamlessly. What are your requirements for funding and how you plan to raise it?
 
SS: We will soon have a preferential and /or rights issue to capitalise the Exchange. 
 
ML: You have converted the original promoters, FTIL and MCX, as public shareholders. Will there be any change in your relations with them, like technology support from FTIL and using MCX as the brand name? Do you see a possibility for a new vendor for technology supply or a change in branding in the near future for MCX-SX?
 
SS: FTIL has already sold its shareholding and exited the Exchange. It continues to be our technology provider. MCX continues to be our shareholder. As far as the brand or name is concerned, we will soon unveil our new brand identity. 

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