High 2G reserve price a mistake: Montek Singh Ahluwalia

A senior functionary of the United Progressive Alliance (UPA) government has finally admitted that it was a mistake to fix a high reserve price for the 2G spectrum auction held last week.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, who was also a member of the empowered group of ministers (EGoM) that set the reserve price, told reporters that the government would need to take a relook at the reserve price in the next round of auction.

''I myself raised the issue that it was a mistake to pitch the reserve price at a level close to that,'' said Ahluwalia on the sidelines of a CII organised event in Delhi. ''I think in hindsight it is clear that the reserve price was too high. But that doesn't matter. We are going to re-auction and you will discover the price.''

The government had hoped to raise about Rs40,000 crore following the auctioning of 5 Mhz of all-India spectrum last week. However, the response from the industry was disappointing, with leading telecom players avoiding the bidding. The government could finally raise just Rs9,407 crore.

Ahluwalia pointed out that the EGoM had in fact lowered the reserve price from Rs18,000 crore suggested by the Telecom Regulatory Authority of India to Rs14,000 crore. Defending the move, the close aide of Prime Minister Manmohan Singh said that a healthy auction process would discover the price, irrespective of the reserve that was fixed.

Calling for a relook at the spectrum prices for the second auction due to be held soon, Ahluwalia said this would cover the major circles of Mumbai and Delhi, besides Karnataka and Rajasthan, which did not have any takers in the first round. However, the EGoM would ultimately have to decide on the reserve price, he said.

The auctions were held last week after the Supreme Court in February cancelled 122 telecom licences, issued on a first-come-first-served basis, bundled along with 2G spectrum in 2008. There was no bidder in the CDMA space and even in the GSM space, just a third of the spectrum was sold.

CARE Research, in a report on the 2G auctions, noted that limited participation and modest spends by the operators are good for the industry, which is yet to recover from the debt burdens of 3G and broadband wireless access auction outgo.