Dec 26, 2008

India - Blame it on Cabinet, 3G auctions likely to miss January date

Joji Thomas Philip & Sandeep Gurumurthi

NEW DELHI: The auctions for 3G spectrum, vital for next-generation telecoms services such as video-calling and broadband internet on mobile
phones, are set to be delayed beyond its scheduled date of January 16 and may take place in February, according to a top official in the communications ministry.

“The auctions have been delayed as the Cabinet is yet to approve some of the key proposals regarding the auctions,” the official, who asked not to be named, said. However, industry executives said the auction may end up being deferred for a longer time. “If the auctions are delayed by more than a month, it may not happen during the UPA rule. This is because, the code of conduct for the general elections will kick in from March 2009,” said a top executive with a telecom company that is looking to participate in the third generation or 3G auctions.

This executive, who asked not to be named and his company not be identified, also said he had received information from government officials on the auctions being deferred. According to the official, the primary reason behind the Department of Telecom’s (DoT) move to defer the auctions was the poor response to the 3G pre-bid conference on Tuesday by new firms, including foreign players. While the DoT has allowed foreign operators to participate in the 3G auctions, most international players have indicated that they are likely to give it a miss. Global operators have also pointed out that the auction guidelines have been structured to favour only existing Indian operators and have sought several changes to the country’s 3G policy.

Another possible reason could be that foreign players and some Indian companies such as Reliance Communications and Swan have sought additional time to study the information memorandum, which contains all details regarding the auction.

This memorandum, which lists out the spectrum slots and its availability in each circle, was released on December 12 and global telcos have pointed out that a 30-day timeframe would not be sufficient to plan for a multi-billion dollar 3G bid. But officials of the ministry of communications maintained that the delay in Cabinet clearance is holding things up.

Analysts expect the 3G auction to be a subdued affair due to the global financial crunch. Most analysts said the auctions could fetch the government anywhere between Rs 20,000 crore and Rs 30,000 crore ($4-$6 billion), although communications minister A Raja is confident that the amount could be as much as Rs 40,000 crore.

Last week, the Telecom Commission, India's telecom decision-making body, had rejected a proposal to impose an ‘administrative tax’ on successful bidders of 3G wireless frequencies, fearing such a tax could impair revenue collections at the upcoming spectrum auction by over Rs 5,000 crore. The commission, after turning down Trai’s recommendation that successful 3G bidders pay 2% of the highest bid amount annually as administrative charges for using the spectrum, had sought the Cabinet endorsement on its decision. Besides, the Telecom Commission had also sought Cabinet approval for its decision to restrict the upcoming 3G auction to five players per circle. This was because of a legal challenge in the Delhi High Court to DoT's move to limit the number of 3G players to five in a circle.

“The Cabinet may take time to clear these proposals — we cannot go ahead with the 3G auctions unless the Cabinet approval comes through,” the communications ministry official added. The DoT may also use this extended period to offer more clarity on the auction process and the policy to foreign telcos. For instance, foreign operators have termed the DoT's recent announcement that new telecom players which win 3G spectrum in the auctions will also be eligible for second generation (2G) radio frequencies, as a mere “gimmick” “The DoT has only said new entrants who succeed in 3G bids will have to wait in queue. They have given no other details. Foreign operators can't plan their business model unless they have further clarity,” said an executive with a multinational telco requesting anonymity. At present, all telecom services in the country are offered on 2G radio frequencies.

An Indian representative of another global telco said the current policy did not specify how new entrants would be allotted additional spectrum in future. The executive added that as successful overseas 3G bidders would get a mere 5 MHz, they would not be able to compete with existing operators such as Bharti Airtel and Idea Cellular, which already had up to 10 MHz of 2G spectrum and are likely to get another 5 MHz of 3G spectrum in the auctions.

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