Vodafone India: the heat is on as government calls for new spectrum auctions

Bandwidth hikes, corruption probe, tax demands – where will it all end?

Vodafone’s Indian subsidiary has hit out at plans by the federal government to auction telecom bandwidth when key licences expire in 2014 as “completely unjustified on economic, commercial and competitive grounds.” Under new government policy firms like Vodafone and top mobile operator Bharti Airtel won’t be reallocated their existing airwaves when their licenses come up for renewal but will have to acquire airwaves through government auctions instead. The changes will impact some of the most lucrative areas for mobile operators such as Delhi, Mumbai and Kolkata.
Earlier this month the government announced it would hold an auction by the end of March to sell bandwidth in the 1,800 MHz range in Delhi, Mumbai, Karnataka and Rajasthan areas after failing to get any bids in a November auction because of high starting prices.

It had set the starting price at 140 billion rupees ($2.5 billion) for a 5 MHz slot covering all of India’s 22 telecom service areas, though for the next round it has slashed the price for the 1,800 MHz band by 30 per cent.

The government also proposes to auction airwaves in the 900-MHz band where companies such as Vodafone and Bharti prefer to operate as it is twice as efficient as the 1,800MHz frequency.

But in a letter to India’s telecoms secretary, Vodafone has attacked the policy changes maintaining that spectrum costs will be “excessive”, making business unviable.

Instead of new auctions it is seeking a 10 year extension to its licenses in the affected regions without any changes to the underlying bandwidth structure.

Vodafone’s protests comes as the company is entangled in a corruption probe in which it is claimed spectrum was awarded illegally under a former, Hindu-led government.

Bharti Airtel, headed by billionaire Sunil Bharti Mittal, is also involved in the police investigation in which accusations go back to 2002.
Police are additionally examing separate rigging claims stemming from the 2008 sale of Indian bandwidth by the current Congress government.