3G,Going 3ce

Any telecom policy in general,and 3G services in particular,is based on three fundamental elements: first,minimum reserve price for spectrum auctioning; second,identification of spectrum to be auctioned; and third,the auction’s design. These elements are what will decide the success of 3G auctioning and hence will determine the future structure of the telecom industry.

Minimum reserve price has been a highly debated topic among those responsible in government,in the TRAI,the DoT and the ministry of finance. In the wake of high valuations of companies that only recently acquired 2G licences,the finance ministry recommended doubling the present minimum reserve price of 0.5 per cent of India’s GDP — coming to Rs 2020 crore. At present,there are two schools of thought about pricing. According to the first,the government should view the auction as a revenue maximisation exercise,and thus charge a significant price for the spectrum. This is the view favoured in government circles — especially given the approaching elections,and the growing fiscal deficit due to increased expenditure on various schemes and bailouts. The counter-argument posed to this is that it might result in telecom companies spending excessive amount for the spectrum,causing them to be financially unstable; this might mean that the rollout of 3G services could be poor. The telecom industries in many European countries — such as the UK,Germany and Italy — suffered a serious downturn after 3G auctions. For this school of thought,the government should auction the spectrum at a lower price and thus encourage quicker rollout of 3G services. This could lead to increased revenues from data and value-added services,which would benefit both the industry as well as the government.

The second aspect,spectrum identification and its availability,is also problematic. The DoT has indicated that they have spectrum for 8 to10 licences per circle,but all of it is not available immediately,as it is currently occupied by the military. So,in busier circles like metropolitan cities,only 3-4 licences could be made available for operators. This could be suicidal for those mobile operators who are not successful in obtaining a 3G licence,as they will face a high usage subscriber migration. This has happened elsewhere: the United States chose to wait for two years before conducting 3G auctions,due to their military’s delay in relinquishing spectrum.

Finally,the design of the actual auction itself is still up in the air. The DoT guidelines suggest that the foreign operators will have to pay a licence fee of Rs 1651 crore to participate in the auctions. However,that licence also includes rights to 5 MHz 2G spectrum — which cannot be allocated due to spectrum unavailability. Expectedly,the foreign players have showed disagreement to such partiality.

The auction procedure has many intricate issues: the entry of existing players into new-generation technologies; the question of Indian vs foreign companies; the methodology or formula by which — instead of a maximum — an optimum minimum reserved price can be worked out; how to regulate new business models such as the mobile virtual network organisation which will take spectrum from existing companies and will offer highly customer focused telecom services; and lastly what I generally refer as the spectrum audit,that is,measuring the efficiency of spectrum utilisation.

Lack of clarity on any of these questions could wreck the structure of the Indian telecom industry — and lead to policy chaos,arbitrations and the late roll-out of new generation mobile technologies. The end-user will suffer. What we need is comprehensive policy architecture — mandated not only by government but also by Parliament in a form of new telecom policy regulation.

The writer researches telecom policy and teaches at IIT,Delhi

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