New Delhi: The Indian exchequer could earn around Rs20,000 crore, or just more than $5 billion, when the government auctions radio spectrum to five phone firms offering so-called third generation mobile phone services later this year, estimate two senior officials familiar with the bidding rules being readied at the department of telecommunications, or DoT.
If these estimates, based on internal DoT assessments of the market for 3G services, are met, revenue collections from such licences could, in the very first year, reduce the country’s revenue deficit by nearly 28%, assuming the current year target for the revenue shortfall of Rs71,478 crore at the Union government. The 3G levy, in the first year itself, could contribute about 5% of New Delhi’s budgeted net tax revenues for fiscal 2008.
SPECTRUM ALLOCATION METHODS GLOBALLY (Graphic)
The wireless planning and coordination wing of DoT is currently finalizing details for executing the 3G auction.
3G mobile phone services allow users to surf the Internet or download content, including music and video, at speeds faster than current technologies deployed on Indian cellular networks allow.
In November, Union IT and communications minister Andimuthu Raja said the Indian government would auction up to 25MHz of frequency required for delivering 3G phone services, allowing up to five companies to offer such services. It was not immediately clear whether DoT would allow new entrants to participate in the auction or limit them to phone firms already offering services in the country.
“We should be able to issue the guidelines for 3G auction by April, which will pave the way for auctions to be held later this year,” said a senior DoT official who did not wish to be named because the policy is not final. The official added that DoT will follow the telecom regulator’s recommendations of setting around Rs1,115 crore as the base price for a national 3G licence in the bidding process.
“While it would be difficult to say exactly how much can be raised, a single licence could fetch anywhere between Rs3,000 crore and Rs4,000 crore,” this official said.
One telecom expert said the DoT estimates were credible. The government can raise at least $1 billion, or some Rs3,950 crore, by selling a single, national 3G licence along with 5MHz of radio spectrum in the 2.11-2.17GHz frequency band, predicted Mahesh Uppal, an independent telecom regulatory consultant.
“Telecom operators will be looking to address the current spectrum crunch for offering voice services by acquiring the 3G spectrum,” said Uppal.
Indian mobile phone firms such as Bharti Airtel Ltd and Reliance Communications Ltd, plan to ready more profitable offerings as their average customer billings shrink with a service that is predominantly led by voice. Calling rates for such voice calls are falling as phone firms compete with one another to increase market share and expand into rural areas where affordability is key to the uptake of mobile phone services. The rates, among the lowest in the world at 2 cents or 78 paise, a minute are expected to fall further in the coming few months.
The average revenue per user for 3G services “could range anywhere between Rs500 and Rs700 depending upon the pricing strategies adopted by the operators,” said a Mumbai-based telecom analyst at a foreign brokerage house, who did not wish to be named. “We could see around 15 million 3G customers in the first year of launch.”
If operators subsidize 3G phones, research firm BDA China Ltd has predicted that there could be around 30 million customers for the service by 2010. India added more than 84 million mobile phone customers, using what is called a second generation technology, in 2007.
Countries such as the UK and the US have sold airwaves to mobile phone service firms through auction mechanism to bidders such as Vodafone Group Plc. These countries have allocated radio spectrum for 3G phone services through three different methods—pure auction, fixed fees and so-called beauty contests.
While countries such as the UK, the US and Germany have auctioned the airwaves, China, Korea and Japan have allocated 3G spectrum through the beauty contest method, wherein the licensor, or a government, sets several parameters and participant with the highest score on those measures is adjudged the winner. The third method for allocating these airwaves is the fixed-fee approach, where firms paying a preset floor price are granted a licence and radio spectrum.
The UK government gained almost $44.3 billion when it auctioned airwaves for 3G services in 2000 to around five companies. Germany auctioned its six licences for $37 billion.
Meanwhile, experts such as Uppal said the Telecom Regulatory Authority of India’s (Trai) recommendation to allow just existing operators into 3G services is a biased move. “The incumbent operators already have immense first mover advantage in the mobile market, they do not need any further incentive,” he argued.
The regulator is of the opinion that only existing operators can offer a sustainable and commercially viable 3G service in the country. “With only 5MHz in total spectrum (for each operator), a stand-alone company will not be able to offer economical service,” said a senior Trai official.
Paromita Shastri contributed to this story.