The empowered group of ministers (EGoM) specially constituted to resolve the contentious 3G spectrum auction issue has finally fixed the base price for 3G, broadband wireless access (BWA) and evolution data optimised (EVDO) spectrum. The move is significant as it has permanently changed how spectrum is priced in the country, including 2G spectrum, which is now expected to move away from government-controlled pricing to a market-determined mechanism.
The decisions taken by the government late this August have set the stage for 3G spectrum auctions in November 2009. The EGoM has reserved four 5×2 MHz slots of pan-Indian 3G spectrum at a base price of Rs 35 billion; three 20 MHz slots of BWA spectrum at a base price of Rs 17.5 billion; and one 2×1.25 MHz slot of EV-DO spectrum at a base price of Rs 8.75 billion.
Calling for a stringent timeline for the auction of 3G and BWA spectrum, the EGoM has said that during the first phase, the operators will have to present a detailed project report with their own deadlines for rural and urban rollout. In the second phase, only the scrutinised players will be allowed to bid and the winners will be decided not only on the basis of the bids but also their project reports.
Significantly, the finance and telecom ministries are in agreement over limiting the spectrum auctions to 4+1 slots ?? four for private operators and one reserved slot for Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL). According to the EGoM, even though the operators are pushing hard for all available 3G spectrum to be auctioned, limiting the number of slots is the most advantageous option for the government. The reason behind this is perhaps the target of raising at least Rs 250 billion from the sale of spectrum. Auctions are meaningful only when the demand exceeds the supply, and since about only five or six serious bidders are expected, limiting the auction to four blocks is a healthy way to get more than the reserve price.
Siddharth Behura, secretary, Department of Telecommunications (DoT), says, “The EGoM’s counsel is more or less in line with the recommendations made by the Telecom Commission late last year.”
Both BSNL and MTNL, which had been allotted 3G spectrum in late 2008 and had subsequently launched services, will now only have to match the highest bid emerging in the upcoming auctions.
The private operators, meanwhile, are reportedly not satisfied with the base price fixed for 3G spectrum. Already, there are signs of discontent as the mobile operators feel that the reserve price is too high and that it will discourage companies from participating in the auction. Consequently, the cost of services to users will increase.
The operators believe that fixing the base price for pan-Indian 3G spectrum at Rs 35 billion is a compromise by the EGoM between the Rs 20.2 billion suggested by the Telecom Regulatory Authority of India (TRAI) and the Rs 40.4 billion pushed for by the finance ministry. This, according to the operators, will not help the industry.
T.V. Ramachandran, director-general of the Cellular Operators Association of India, says, “The high price will stop operators from entering the auction. The ideal price should have been the Wi-Max reserve price (Rs 17.5 billion) or at best a little more than that. The current price will encourage back-door entry by the WiMax licence winners into the 3G space as there will be little difference between WiMax and 3G technologies.”
The Association of Unified Telecom Service Providers of India (AUSPI) has also deemed the reserve price to be too high. Moreover, the CDMA operators’ association is not happy that its demand for auctioning the entire available 3G spectrum has not been met. According to S.C. Khanna, secretary-general, AUSPI, “The right price should have been the TRAI-recommended Rs 20.2 billion, and instead of selling four slots (to the private operators), all 3G spectrum slots should have been auctioned which would have kept the prices affordable. By fixing the base price so high, the government is only looking at money and not affordability.”
Analysts also point to the fact that the reserve price has been increased at a time when the global economic slowdown has been affecting businesses. The high cost to the operators will naturally be passed on to users, which will make 3G services more expensive and, in turn, impact the uptake of the services. Some analysts also expect that while bidding in the lucrative markets ?? mostly the metros and the A circles ?? will be competitive, the B and C circles might have subdued auctions.
Despite these challenges, the EGoM’s decision is a step forward. The deadlock on the issue of spectrum, which has delayed 3G spectrum auctions endlessly, has been broken. As Manoj Kohli, chief executive officer and managing director of Bharti Airtel, puts it, “We welcome the government’s decision to expeditiously complete the planned auction of 3G spectrum. We believe 3G will drive the wireless broadband revolution in both urban and rural India, contributing to inclusive growth.”
As we go to press, the government has announced its decision to hold the auction for 3G GSM spectrum on December 7, 2009 and BWA spectrum, mainly for Wi-Max services, and for EVDO two days later. A mock auction will be held for two days, on October 3 and 4; DoT will issue clarifications, if any, on October 22; aspirant companies will have to submit their shareholding details by November 18 and authenticated ownership certificates by November 23.
Also, the EGoM has decided to levy a spectrum usage charge of 3 per cent of the annual gross revenue on new operators providing 3G services. Incumbent operators will have to pay 1 per cent of annual revenue in addition to the 2??6 per cent levy they already pay for 2G services.
