14 November 2012 Last updated at 22:57 ET

India 2G telecom auction falls short of target

The auction of the 2G telecom licenses has been marred in controversy

India's latest auction of mobile phone licences has fallen flat, raising less than a quarter of the money the government had targeted.

The auction for second-generation (2G) mobile phone licences raised 94bn rupees ($1.7bn; £1bn). The government had wanted closer to 400bn rupees.

Many companies had complained that prices were set too high.

An earlier sale of the licences was annulled by the Supreme Court after a corruption probe.

The previous licences were issued by former minister A Raja, who is accused of mis-selling the bandwidth in what has been called India's biggest corruption scandal. Mr Raja, who is currently on trial for fraud, has denied any wrongdoing.

Government auditors say the scandal cost the country about $40bn (£24.5bn).

'A big embarrassment'

The auction has been marred with controversy as firms not only complained about the high base prices, but also alleged that the limited amount of bandwidth being offered had deterred many bidders.

"The limited amount of spectrum... was guaranteed to have a very detrimental impact on the auction," said Rajan Mathews, secretary general of the Cellular Operators Association of India.

"We said that the high reserve price would ensure that limited players come into the bid and that is exactly what we have seen."

In a big blow to the government, four circles, including Mumbai and Delhi did not attract any bids.

There were also no takers for the all-India licence.

"All in all, a big embarrassment for the Indian government, but one could see it coming," said Prashant Singhal, telecom industry leader, at Ernst & Young India.

The lacklustre response to the 2G auction contrasts with the 2010 sale of faster third-generation (3G) licences that fetched the government nearly $15bn.