Contrary to expectations that the regulator?s recommendations on 2G spectrum pricing would depress the 3G bid prices, operators are bidding even more aggressively. As a result while the auctions were expected to be over last week continued and are expected to go on for the next few days.

The one big reason which saw the auctions for 3G airwaves continuing is the controversial nature of 2G spectrum pricing and allocation by the Telecom Regulatory Authority of India (Trai). Leading operators are now sure that the road map for 2G spectrum allocation is going to be a long drawn one and it makes sense to bag 3G spectrum, which would come clean.

Prashant Singhal of E&Y puts it aptly: ?The 3G auctions are the only way to get clean and litigation-free spectrum which is available. One had expected that once the regulator?s recommendations on 2G spectrum comes in the 3G auctions would crash land, but the recommendations have had the opposite effect?.

On Saturday a single provisional bid for pan-India 3G spectrum touched Rs 15,814 crore, beating all analyst estimates. So far the government has earned Rs 63, 885 crore, which is almost 30% more than the revised estimate of Rs 55,000 crore made by the government. In fact it is 82% more than the Rs 35,000 crore the government had originally budgeted as the proceeds from the 3G spectrum auction and the broadband wireless auctions together.

The proceeds from the auctions have jumped 12.8% since May 11, the day the 2G spectrum pricing recommendations came in. The anxiety of the operators is not unjustified says Romal Shetty of KPMG, ?Indian telecom operators have always been starved of spectrum for one or the other reason and there has been no spectrum allotment in the past two years. With the current 2G recommendations any fresh spectrum allotment looks bleak for the next one or two years, so operators have no choice but to buy whatever is available and that is pushing the bids?.

Already leading operators like Bharti Airtel and Vodafone-Essar have harshly criticised the recommendations calling them ?perverse and arbitrary? and called on the department of telecommunications to reject them. As earlier reported by FE, with the Trai linking the 2G spectrum price with 3G and in cases of operators holding the former beyond 6.2 Mhz would have to pay 1.3 times the 3G price, it makes sense for them to return the excess 2 spectrum. In that event the fight for the 5 Mhz 3G spectrum becomes even more crucial as it has the capacity to provide both voice and data services.

?The Trai recommendations have completely shocked the telecom industry. Now that the 2G auctions are ruled out in the short-term and a policy on further allotment remains unclear, operators have no choice but to buy as much spectrum as possible from the market?, a senior official with a telecom service provider told FE.

This is clearly evident from the trend of the 3G spectrum auctions. In spite of the government increasing the level of activity of the auctions to 90% last week, signaling that the auctions would soon get over as the operators were now expected to shift their focus to the category B and category C circles, and the communications and IT minister A Raja too announcing the auctions would soon end, the auctions have stretched beyond a week and likely to continue into early this week.

Also in instant reaction to the recommendations, the operators continued to focus and bid aggressively in Delhi and Mumbai rather than just the category B and category C circles, contrary to what was expected once the government raised the level of activity to 90%. Mumbai reached the level of equilibrium only on Saturday, while the operators continued to fight it out for Delhi. Not surprisingly these are the two circles where Vodafone and Bharti Airtel hold spectrum beyond 6.2 Mhz.