VSNL director (operations) Amitabh Kumar told The Financial Express that the company was actively looking at becoming a 3G cellular service provider by bidding for the 3G licences. The company is yet to decide on the quantum of investments for the purpose. "It will require hundreds of crores," Kumar said on Friday.

This service, which will be an extension of its existing Internet services, is the second major diversification for VSNL. Recently, the company had announced its plans to enter the national long-distance telephone business. VSNL is in talks with Mahanagar Telephone Nigam Ltd (MTNL) and a couple of other firms for alliances.

Kumar said the proposed entry into the 3G segment will help VSNL complete the spectrum of offerings. The company offers international telephone, Internet and networking/content services. VSNL is the no 1 Internet Service Provider (ISP) in the country having the largest subscriber-base.

Kumar said VSNL was not planning to submit bids for the GSM cellular licences. The government is expected to invite a third company to run the cellular operations in each circle, as per the National Telecom Policy 1999.

"We are looking at high-end technologies. 3G will help deliver high quality broadband access to the consumer through mobile phones," Kumar added.According to sources, DoT plans to auction the 3G licences in the country shortly. Companies like BPL Innovision and Hutchison Max are expected to join the fray. 3G licences ride on higher frequencies for providing high quality broadband access to the consumer through mobile phones. These frequencies were recently auctioned by the UK Government for about $34.42 billion.

Sun Infoways (a wireless application provider) e-strategist Umesh Gowda says that domestic cellular companies will have to spend huge funds to become a third-generation service provider in the country. The entry of 3G was a huge success in the UK market, Gowda added.

Worldwide, mobile companies are bidding to corner the 3G frequencies that will allow them to deliver high speed access. The 3G licence lets users access the web at 40 times the existing speeds using wireless devices. Analysts expect that by 2005, more users will connect to the web using their mobile phones than by conventional methods.

DoT is said to have set up a focus group to suggest the methodology to be followed for the auctions. DoT's formula for 3G licence auctions is yet to be finalised. Countries like Italy are planning to set a minimum price of $1.9 billion for each of the five high-speed mobile phone licences that will be awarded later this year to raise at least $10 billion.

The Italian government will use a two-step bidding process to award the licences. Companies seeking a licence will be allowed to bid from the minimum price after they have passed a pre-qualification stage. The UK sold its licences to the highest bidder.