DoT proposes levy to check 3G M&As

Written by Vrishti Beniwal | Rishi Raj | New Delhi, Feb 27 | Updated: Feb 28 2008, 05:26am hrs
In a move that could act as a strong deterrent to unearned gains in the allocation of 3G-spectrum, the department of telecommunications (DoT) has proposed that in the event of a merger & acquisition, the new entity would have to pay the government 25% of its total valuation.

In a note drafted to formalise guidelines for 3G services, DoT has said that the levy would fall under spectrum usage charges.

Earlier, the government had proposed that telecom firms that obtained 3G spectrumwhich are to be auctionedwould not be allowed M&As for an initial five years to discourage trading in spectrum. The 25% payment to the government would come into effect after the five-year cooling off period.

Sources said the levy is expected to serve two purposes: firstly, non-serious players who enter the auction fray only to cash out later would be weeded out; and secondly, since valuations of telecom firms, which anyway are high, go up further following an auction, the government would reap a windfall by way of its ownership of spectrum, which is a scarce resource.

By conservative estimates, the government stands to rake in over Rs 6,000 crore through the auction of 3G spectrum itself. According to a recommendation by Telecom Regulatory Authority of India, a reserve price has been fixed of Rs 80 crore for Mumbai, Delhi and category A circles; Rs 40 crore for Chennai, Kolkata and category B circles; and Rs 15 crore for category C circles.

Operators would bid over and above these figures. Going by these prices, an operator seeking 3G spectrum for all 23 circles, along with spectrum for broadband wireless access, would have to fork out Rs 1,400 crore just by way of the reserve price.

For 3G services, spectrum in the 800 MHz and 2.1 GHz bands has been identified. While 25 MHz would be in 2.1 GHz, 1.25 MHz would be in the 800 MHz band. The 800 MHz band has been reserved for CDMA operators, while that in 2.1 GHz can be bid for by both CDMA (only those who do not opt for 800 MHz) as well as GSM operators.

While the auction process is yet to be finalised, spectrum would initially be allocated to the first five successful bidders, while others would be waitlisted and allocated spectrum as subsequent tranches are made available.