New Delhi: The government has begun the auction for the 2G spectrum with a hope to meet the Rs 40,000 crore revenue budget.

Five bidders, namely, Bharti Airtel, Vodafone, Idea Cellular, Telenor and Videocon are bidding for the GSM (Global System for Mobiles) airwaves. There are no bidders for the CDMA (Code Division Multiple Access) airwaves with Tata Teleservices pulling out of the auction last week.

With Tata Teleservices pulling out of the auction, there are doubts as to whether the government will be able to meet its target of Rs 40,000 crore.

The government has set a base price of Rs. 14,000 crore for 5 mega hertz of GSM airwaves in all the 22 zones which is said to be rather too high.

Last week, Bharti group chairman Sunil Mittal had expressed the opinion that the reserve price of Rs 14,000 crore was “too high” and that the auction would get over in a day.

The reserve is more than seven times what companies paid in the 2008 grant process.

The auction follows the cancellation of 122 licences by the Supreme Court.

The cancelled permits included Uninor’s 22 licences, Loop Telecom (21), Sistema Shyam (21), Idea Cellular including Spice Communications (13), Videocon (21), Etisalat DB formerly Swan Telecom (15), S-Tel (6) and Tata Teleservices (3 CDMA licences).

Instead of auctioning entire spectrum freed from cancellation of licences, the government is auctioning a maximum of 11 blocks of airwaves frequencies in each circle, barring Delhi and Mumbai where there are only eight blocks, to attract high price for spectrum.

The apex court had allowed the companies, whose permits were cancelled, to get spectrum reallocated for continuing their business if they win rights for the airwaves frequencies in the auction.

Comptroller and Auditor General has estimated that allotment of permits in 2008 at 2001 prices caused loss to government exchequer to the tune of around Rs 1,76,000 crore.

Out of eight companies whose licences were cancelled, only three companies — Idea Cellular, Videocon and Telenor (majority stakeholder in Uninor) — have submitted bids for auction of airwaves frequencies.

These companies will have to win at least 5 Mhz of spectrum, divided in blocks of 1.25 Mhz each, to continue their services in areas where their licences were cancelled.

Telecom major Airtel and Vodafone are also participating in the auction to buy additional airwaves frequencies. These players can bid for maximum of two blocks in a telecom area.

Since there has been partial impact on permits of Idea Cellular, the company will need to bid for at least four blocks of spectrum, amounting to 5 Mhz of airwaves, in seven telecom circles to continue its operations.

These circles include Tamil Nadu (including Chennai), Kolkata, West Bengal, Orissa, Assam, North East and Jammu and Kashmir service areas. In rest of the circle, Idea Cellular can bid for maximum of 2 blocks only like Airtel and Vodafone.

Industry experts, however, are pessimistic over whether the auction can fetch government the Rs 40,000 crore target it seeks to achieve by selling spectrum.”The government itself recognises that they are not going to get anywhere near Rs 40,000 crore, will be lucky if they get half of that amount, so we think that somewhere between Rs 19,000-20,000 crore might be the amount that the government will actually bring in,” COAI director general Rajan S Mathews told a news agency.

Bharti group chairman Sunil Bharti Mittal has said that the auction will be over on first day. The last auction held by government of 3G and Wireless Broadband spectrum jointly took around 50 days to end.

Auction for another set of airwaves frequencies required for CDMA services has already failed after two applicants, Tata Teleservices and Videocon withdrew from it.

The government priced CDMA spectrum 1.3 times higher than GSM spectrum. This auction could have fetched government at least around Rs 13,000 crore.

Citing recommendations of Telecom Regulatory Authority of India (Trai) to fix minimum price of CDMA spectrum at double the price of GSM spectrum, Sibal said that the Empowered Group of Ministers’ realised that there will be no taker for these airwaves at Rs 28,000 and hence it lowered it to 1.3 times instead of double price.

“If we go below Rs 18,000 crore we go below Rs 16,000 crore then what will you say. Then you will say that you have again undersold, there is yet another scam. The minister is favouring somebody,” Sibal said.

SSTL, which run services under brand name of MTS, did not participate in the auction as it is waiting for the hearing of its curative petition before Supreme Court.

In the petition, the company has requested for reinstatement of licences as it has argued that it was allocated spectrum for which there was no demand.

The company, which did not participate in auction, maintains that it will continue its operations in India.

“Absolutely we will continue. We are putting all focus and hopes towards the legal route and we hope the Supreme Court to consider our curative petition,” SSTL president and CEO Vsevolod Rozanov said.

Mathews of COAI said the industry body had been saying that given the reserve price, the quantum of spectrum that is being put up and the overall structure, it is not going to be a very successful auction.

“We don’t expect the auction to meet any of the objectives that the government has set, so overall if you use that as the criteria, clearly it’s not a very successful auction,” he said.

At the end of the auction, companies will have the option to pay either full amount of 33 per cent of final price by December 25.

The final auction price will then determine the amount that government will get from one-time levy on spectrum held by existing operators beyond 4.4 Mhz.

The government expects to garner Rs 31,000 crore from this one-time levy throughout the validity period of existing licences. The major portion of the estimates includes price calculation based on reserve price. The bid details, including the highest bid value, will be disclosed at the end of each day till the completion of the e-auction, DoT had said.

However, the name of the bidder will not be revealed.

The operators will be allowed to bid only through four IP addresses pre-registered with the Department of Telecom.