Setting the base price for spectrum has proved to be an extremely tricky task. Now that the Department of Telecommunications (DoT) and the Ministry of Finance have both had their say, the issue has been passed on to an empowered group of ministers (EGoM). The EGoM has a two-pronged task ?? to decide whether to increase the floor price from Rs 20.2 billion to Rs 40.4 billion, and to come up with the number of operators that should be permitted to offer services per circle. If all goes well, the government projects that it will rake in Rs 350 billion from the 3G auctions. This is in contrast to 2008 estimates, when the government stated that it expected to garner Rs 200 billion. This indicates that a reserve price hike is definitely on the cards. However, due to the difficulty in reaching a consensus, the auction itself has been delayed (it was to take place soon ?? in August 2009) by three or four months, till as late as December 2009.
After months of deliberation, DoT and the finance ministry were unable to agree on the pricing and allocation of 3G spectrum. While the finance ministry was of the view that the floor price of Rs 20.2 billion, stipulated in September 2008, should be doubled, DoT was looking at hiking the same to Rs 35.4 billion. Moreover, while the finance ministry wanted spectrum to be allocated to five operators, DoT advocated that eight operators should provide services to foster competition.
Background
The 3G spectrum auction, which has been postponed several times, was earlier supposed to take place in January 2009. It was deferred because the defence ministry had not released the required spectrum bands. Further, the finance ministry had become uncertain about the 3G pricing regime in light of the development that new players had acquired telecom licences and start-up spectrum at throwaway prices and had subsequently divested stakes at a wide profit margin.
In June, the defence ministry agreed to vacate 10 MHz of additional spectrum across the country. Barring the Delhi, West Bengal, Rajasthan and Gujarat circles, DoT now has enough spectrum to allocate 5 MHz blocks of spectrum each to over five players.
Implications
The announcement of the reserve price hike has mobile operators up in arms. Reportedly, the Cellular Operators Association of India (COAI) is of the view that increasing the base price for spectrum will make 3G services unaffordable for the masses. This is especially the case with broadband wireless access as many internet service providers will not be able to participate in the auction at all. The Association of Unified Telecom Service Providers of India is of the same opinion. The COAI is also of the view that the government must settle the 2G spectrum policy before it auctions 3G spectrum, as the two services cannot be offered independently.
Eventually, DoT’s aim is to ensure that the finance ministry does not come up with any new roadblock for the upcoming auctions. With respect to the 2G spectrum policy, DoT will reportedly take a final decision only after the 3G auction is complete since the pricing of 3G spectrum should be related to that of 2G spectrum.
Analysts, though, have mixed views on the matter. Says Dr Mahesh Uppal, director, ComFirst, “The hike in reserve price will make a difference only in circles where the level of competition is likely to be low. In most other cases, we will find that the reserve price will be easily exceeded during the natural course of the auction.” He, however, adds, “This does not mean that there is no case for keeping reserve prices low so that more people can participate. But I do not necessarily believe that a high reserve price will make a big difference to those circles where the competition for spectrum is high, such as in the metro, A and B circles.”
Kunal Bajaj, director, BDA Connect, differs. “The new reserve price of Rs 40.4 billion is definitely a bit high,” he says. He, adds, “Given that there may be additional slots of spectrum available for auctioning, I think what the government is trying to do is to ensure that a minimum level of revenue is earned. If there is a situation in which six to seven slots are auctioned, there might end up being only six or seven operators who can afford to buy the 3G licences or spectrum. Hence, the bid might just end up settling at the reserve price itself.”
However, for now, it is essential that a decision is taken and the auctions are held in order to kick-start 3G services in the country as soon as possible.
