Auction decision for 3G, broadband spectrum evokes mixed response

Written by Anandita Singh Mankotia | New Delhi | Updated: Aug 29 2009, 04:57am hrs
The eGoMs decision to auction 4+1 (4 for private operators and one for BSNL/MTNL) slots for 3G spectrum and 3 +1 for broadband wireless spectrum (BWA) at a reserve price of Rs 3,500 crore and Rs 1,750 crore, respectively, generated a mixed response from the telecom operators.

Irrespective of the reserve price, foreign telcos, not present in India would still not be enthused to go for a greenfield 3G project as it would not make a business case for them. Countrys largest telecom operator, Bharti Airtel, which is in best position to raise funds for 3G auctions, welcomed the decision with the CEO and joint managing director (MD) of Bharti Airtel saying, We welcome the governments 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 looks forward to participating in the auction.

However, industry bodies, the Cellular Operators Association of India (COAI) and the Association of Unified Service Providers of India (Auspi) termed the reserve price on the higher side, which would not make the business case viable for operators. WiMAX and 3G spectrum are the same technology platform and the reserve price for the two should have been same around Rs 1,750 each, COAI director-general, TV Ramachandran told FE, adding that different reserve price is nothing but arbitrage. Ramachandran added that though the Rs 3,500-crore reserve price was better than Rs 4,040 crore proposed by the finance ministry, it was on the higher side. Services would not be affordable and I doubt if any operator would even participate in the auctions, Ramachandran added.

Auspi secretary-general, S C Khanna also termed the reserve price as very high. Its a bad decision leading to unviable business model and unaffordable services. The government should have gone with the Trai-determined reserve price, which was at Rs 2,020 crore, Khanna said. Analysts like Prashant Singhal of E&Y took a more nuanced stance. The increase in the reserve price for 3G auctions from Rs 2,020 crore to Rs 3,500 crore, with a 4 slot bidding, could see some competition in lucrative markets, such as metros, A circles, but may still not see a lot of bidding in the B and C circles. Over 75% increase in the reserve price within a years time and that too with the economic recession could be a dampener to the excitement in the Indian telecom industry. The high base price would mean that operators would raise the cost of services to the consumer. That in turn could prove to be a negative to the growth of 3G in India.

High or low reserve price, foreign participation in the 3G auctions would still be negligent due to lack of level-playing field with the incumbents. Firstly, the foreign operators would have to acquire the unified Access Service Licence (UASL), which costs Rs 1,651 crore for pan-India. This would be over and above the bid price. However, they would not get the 2G spectrum. This essentially means that the quality of their service vis-a-vis the existing operators will be poor since the existing operators would simply lay the 3G network over the existing 2G network.