India's tortuous path to 3G

Ruth David
17 Nov 2009

It's hard not to see parallels between New Delhi's preparations for the 2010 Commonwealth Games and the government's attempts to auction off 3G spectrum. Both are controversy-cloaked events that are well behind schedule.

After re-starting the auction process that had been delayed eight months until September, the Department of Telecom (DoT) again had to stall proceedings, with Communications and IT Minister A Raja saying the Defense Ministry had not vacated key 3G spectrum required for the auction scheduled for December 7. The Defense Ministry was to have handed over 20 MHz of spectrum by December, as per a memorandum of understanding signed between the ministries this summer.

What followed was a well-publicized exchange of letters between the Finance Minister Pranab Mukherjee and Raja, with the latter saying it was up to the telecom minister to ensure the auction goes off on schedule. In India, "on schedule" is an expansive term, and while the finance minister's words have wei ght, the auction has now been postponed to January 14.

The DoT's fix has been to trim the auction. Instead of selling four licenses in all 22 telecom circles, it will sell four blocks of two times 5 MHz spectrum, with one block reserved for state operators BSNL and MTNL, in 20 of the country's 22 telecom zones. There isn't spectrum available for the remaining two zones. It will also sell three broadband wireless access licenses in these zones.

"Interested foreign entities are allowed to participate in the auctions directly and apply for a licence subsequently," the DoT has said. But non-Indian players will need to find a local partner to operate here because foreign ownership in telecom is capped at 74%.

The government wants to finish the process before the end of this fiscal year. The reserve price for a pan-India license is set at Rs35 billion ($751 million), up from an earlier price of Rs20.2 billion.

The biggest local businesses, such as Bharti Airtel, Vodafone Essar and Reliance Communications, have made no secret of their desire to bid for 3G frequencies, which will add capacity to congested 2G networks and enable them to offer fresh services like gaming, videos and internet access.

The tussle over spectrum has been going on for years in one of the world's most attractive telecom markets, with Defense Ministry officials unwilling to release bandwidth until the DoT funds an alternative. Under the agreement signed in May, BSNL was commissioned to build an optic-fiber cable for the armed forces, enabling them to vacate commercially-viable spectrum.

"The FM's words carry weight and it is likely the auction will now take place, in January at least," says telecom expert Satya N Gupta, who worked with the Telecom Regulatory Authority of India between 2000 and 2006. "The government needs the money to balance its budget commitments."

Further darkening the 3G skies is an emerging scandal over Raja's issue of 2G licenses in January 2008.

Instead of an auction, the ministry sold licenses on a "first come, first serve basis," which resulted in new entrants like real estate giant Unitech getting licenses at low prices and then selling stakes to foreign telecom operators keen to enter the market.

Analysts say the government lost out on billions of rupees of revenues by not holding an auction. The Central Bureau of Investigation (CBI) raided the DoT offices in New Delhi on October 23 and is probing a possible "criminal conspiracy" between officials and private companies. Raja has denied any wrong doing.

But handing out licenses to players without telecom experience ended up further crowding an already congested market, says Mahesh Uppal, director at the telecom consultancy Com First. Uppal says India has among the largest number of players in a single market. There were six operators in most of the 22 circles before the last spectrum sale, and now that has risen to about 10.

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