Rs 3,500 cr floor for 3G spectrum

The empowered group of ministers (eGoM) headed by finance minister Pranab Mukherjee on Thursday fixed the reserve price at Rs 3,500 crore for pan-India 3G (third generation telecom) spectrum auction and Rs 1,750 crore for WiMax.

Going by the latest deadline set by the government, the auction for 3G should be held within 95 days of the decision, i.e. by the end of this year.

Not more than four slots would be auctioned in any circle, excluding state-owned telcos BSNL and MTNL which have already been allowed to start 3G operations.

However, the telecom industry, which has been eagerly waiting to roll out 3G services all these years, is not enthused.

“Too high” is how many industry officials reacted to the floor price announcement. They feel, at this price, not many players can even participate in the auction. “I don’t know how many people can afford to be there,” a source said.

TV Ramachandran, director general, Cellular Operators Association of India (COAI) said there was no business case at this price. According to him, the 3G reserve price should have been the same as that for WiMax. “If the government policy is technology neutral, why should there be a difference between 3G and WiMax?”

COAI is the representative body for GSM (global system for mobile communication) players including Bharti, Vodafone, Idea and Aircel.

Interestingly, GSM leader Bharti Airtel welcomed the eGoM decision. “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,” Bharti Airtel CEO and joint MD Manoj Kohli said in a statement.

“Bharti Airtel looks forward to participating in the auction,” Kohli said.

COAI’s rival association, AUSPI (Association of Unified Service Providers of India), representing CDMA (code division multiple access) companies such as Reliance Communications and Tata Teleservices, also criticised the eGoM decision. CDMA players RCom and Tata Tele are both in the GSM space as well.

AUSPI secretary general SC Khanna said the pan-India reserve price for 3G should not have exceeded Rs 2,000 crore. Also, all available 3G slots should have been auctioned, instead of limiting the number to just four in a circle.

Khanna said, “3G should be affordable for the common man, and at this price it won’t be.” He cautioned that 3G in India may meet the same fate as Europe, which has a 3G penetration level of only 20%.

Prashant Singhal, partner and telecom industry leader, Ernst & Young, said at the new reserve price, while there could be some competition in lucrative markets, such as metros and A circle cities, B and C circles may not see much interest. The high base price would mean operators would raise the cost of services to the consumer, which in turn could prove to be a negative to the growth of 3G in India, he said.

Communications minister A Raja told reporters after the eGoM meet that the government would complete the auction of 3G spectrum within three months.  
Around Rs 25,000 crore is expected to be raised by the government from sale of both 3G and WiMax spectrum, Raja, who is a part of the eGoM said.

Reserve price for 3G auction has been a bone of contention for long and also resulted in a long delay in firming up the modalities.

The 3G auction was scheduled to be held earlier this year, but had to be deferred due to lack of consensus among various ministries on the issue of pricing.

Finance minister Pranab Mukherjee said recently that the government must act fast on fixing the 3G reserve price. Also, DoT said in a presentation that introduction of 3G in India is late by a good five years already.

While the Telecom Regulatory Authority of India had initially recommended a reserve price of Rs 1,020 crore, the Department of Telecommunications (DoT) revised it to Rs 2,020 crore for pan-India 3G spectrum. Subsequently, the finance ministry sought doubling of the reserve price to Rs 4,040 crore. Now, the eGoM has set a somewhat median Rs 3,500 crore reserve price.

3G mobile services would allow fast access to high-end data services including video streaming and high-speed internet.

Recently, in a letter to DoT secretary Siddhartha Behura, finance secretary Ashok Chawla had written that “keeping in view the proposed indexation of 2G spectrum prices to the derived price of 3G auction, it would also be necessary to conclude urgently the process of auction of 3G spectrum…”