It looks like the 3G spectrum auction, delayed several times since January 2008, may now kick off in January 2010. An information memorandum (IM) released by the Department of Telecommunications (DoT) has fixed January 14-24 as the deadline for completing the auctions. Bidding for broadband wireless access is to start two days after the 3G auction ends. There is a rider though. “The auction of 3G spectrum will start on January 14, 2010. However, it is an indicative time schedule and subject to revision,” states the DoT notification.
Given the repeated past postponements, the telecom industry is not counting its spectrum till it is actually delivered. However, this time around, hope stems from the fact that the 3G licences that come bundled with spectrum have been calculated to fetch the government revenues amounting to over Rs 300 billion. This is critical given the fact that the government faces a record fiscal deficit of 6.8 per cent of GDP this financial year.
The finance ministry is, therefore, in a hurry and finance minister Pranab Mukherjee, who heads a government panel on 3G policy as well, has, in a strongly worded note, asked the communications and IT minister A. Raja to resolve all outstanding issues related to the 3G licence auction. That, of course, is a tough call for Raja as spectrum allocation and pricing have always been a contentious issue.
The current problem that DoT faces is that its spectrum auction plan hinges on the defence ministry releasing the 20 MHz of spectrum that it had promised earlier. DoT wants the defence ministry to do so by December, ahead of the scheduled 3G auction (which had been originally scheduled for the same month). This will give DoT enough time to identify the exact amount of spectrum frequency available in each circle by the first week of December and incorporate the information in the tender notice to be issued on December 8. It is important as the spectrum available in different circles varies. For instance, 71 blocks of spectrum will be put up for auction across 20 of the 22 telecom circles in the country. While in some circles there is enough spectrum for five 3G operators, there are others like Delhi, Rajasthan and West Bengal that have no spectrum or very little that would suffice for only one or two players.
The problem is that the defence ministry has clearly stated that it cannot release spectrum before June 2010, as it needs time to test the alternative network that Bharat Sanchar Nigam Limited has been building for it.
Faced with this, plus battling CBI raids and controversy over the manner in which scarce radio spectrum was granted to firms like Swan, Datacom and Unitech, Raja has his plate full. In a letter to the finance minister, he has asked for the ministry’s intervention in ensuring that the defence ministry releases the spectrum on time.
Meanwhile, the government has made it easier for multinational firms to bid for 3G spectrum when the auctions take place. The revised IM giving details about the eligibility criteria and time schedule states, “Interested foreign entities are allowed to participate in the auctions directly and apply for licences subsequently.” However, foreign operators will have to apply for a licence jointly with an Indian partner with at least 26 per cent holding, as FDI in the sector is currently capped at 74 per cent.
New players or stand-alone 3G service providers in the telecom space will have to share 3 per cent of their annual revenues with the government as spectrum usage fee while existing operators will have to pay an additional 1 per cent of their revenue. The latter category including players like Bharti Airtel, Vodafone Essar and Idea Cellular already pay up to 6 per cent of their revenues to the government as spectrum usage charge.
Spectrum charges will be payable on the total revenue of 2G and 3G services booked together. DoT has, however, exempt new and stand-alone 3G service providers from paying spectrum usage fee for one year.
In an effort to encourage more players to participate in the 3G auctions, DoT, in consultation with the finance ministry, has decided to extend tax incentives to successful 3G bidders. This implies that the amount each telecom company shells out for 3G bids will be treated as expenditure over the licence period and will, therefore, not be taxed.
The IM also states that permission has been sought from the finance ministry to allow internet service providers and other telecom operators to raise funds for auctions through the external commercial borrowing (ECB) route. Earlier, the Reserve Bank of India had allowed telecom operators to raise only up to $500 million through ECBs.
The IM seems to be an effort in the right direction to speed up the auction process. If all outstanding issues including the DoT-defence ministry impasse are sorted out, telecom companies can look forward to submitting bids by December 21, as outlined in the memorandum.
