Even as the department of telecommunications, or DoT, ponders over whether India’s rules on allocating spectrum for use by phone firms need overhaul, new applicants for telecom licences and rights to frequencies have begun parleys with potential buyers at valuations—running into thousands of crores—that will stun the exchequer.

Some potential licensees among the new applicants are, through representatives, quoting some four times the actual price of a telecom licence that comes along with a right to at least 4.4MHz of radio spectrum even before they have been granted such rights or ordered equipment to kick-start wireless services.

Andimuthu Raja, minister for communications and information technology

If the department sticks with the current rules, “many aspirants such as AT&T and Videocon Industries Ltd will have no choice, but to buy... (licences) from a secondary market", said a senior executive of one of the applicant companies, ranked beyond 20 in the licence application queue.

The executive, who did not wish to be identified, added that a single licence with 4.4MHz spectrum, which normally costs around Rs1,680 crore, is being quoted at around Rs6,000 crore. “I already have some of these applicants knocking at my door," he said, declining to name them.

Going by their position in the queue for licences, applicants such as Parsvnath Developers, S Tel Ltd, Himachal Futuristic Communications Ltd and Swan Telecom Pvt. Ltd could have a chance to get a share of the 20MHz that the government expects to disburse among cellular phone companies soon. Others such as AT&T, Videocon, Unitech Builders & Estates Ltd, Shyam Telelink, Ispat Industry Ltd and Moser Baer Infrastructure Ltd are lower down in the list.

Telecom experts said it is time India junked the current system of allocating frequency, which is a scarce resource that, they believe, ought to be auctioned. The “current licence fee of Rs1,680 crore is based on market prices determined in 2001 and it’s about time that this price is re-determined, based on current market dynamics", said Mahesh Uppal, an independent consultant in New Delhi.

Uppal is all for an auction because, apart from ensuring that the government makes more money, it will also be “a transparent process of spectrum allocation".

The estimates of what the government can make through spectrum auctions vary. If the government does not auction spectrum, “it could lose at least Rs10,000 crore on three licences with around 5MHz spectrum each", said the senior executive at an applicant.

Another telecom expert pegged the “opportunity cost" much higher. “It’s high time for the government to establish true economic value of the spectrum, which is a scarce, national resource," said B.K. Syngal, former chairman of Videsh Sanchar Nigam Ltd (VSNL). “The 25MHz of spectrum to be allocated could easily be valued at around $7 billion (more than Rs27,500 crore)."

In September 2006, US telecom and media regulator, the Federal Communications Commission (FCC), auctioned spectrum to wireless carriers for the so-called third generation (3G) mobile phone services for $13.9 billion, Syngal said. It is expected to “raise another $10 billion in re-farming (from other users of spectrum such as broadcasters) of 700MHz spectrum early next year", he said. After his retirement from the then state-run VSNL, Syngal was the chairman of Reliance Telecom Ltd and vice-chairman of BPL Cellular Holdings Ltd.

In fiscal 2007, the government collected Rs2,100 crore as one-time spectrum charges from telecom operators in addition to about Rs6,300 crore as licence fee, according to telecom regulator Telecom Regulatory Authority of India (Trai).

Licence fees are levied as a percentage of revenues of phone firms in India and some phone firms argue this is a proxy payment for spectrum.

The Cellular Operators Association of India (Coai), a trade body representing firms using the popular GSM mobile communications technology, has opposed any move to auction frequency.

The government, which is still deliberating on how best to price and allocate the spectrum, is still unsure on whether it should take to auctions. “We are considering an option to price new radio spectrum in a manner that will reflect demand for such frequency in addition to the current formula that has telecom operators sharing revenues with the government," senior DoT officials, requesting anonymity, had told Mint last week.

But on Tuesday, minister Raja hinted that the government may continue with the current system of allocation of frequency and may not take the auction route. “How can you change current policy after accepting applications?" he asked reporters on the sidelines of an industry function.

The minister confirmed that new guidelines for allocation of spectrum would be issued in a few days’ time.

Meanwhile, incumbent operators and new applicants are gearing up for a legal battle, depending upon what direction DoT takes. “If players go to the court, it will further slow down the process of issuing new licences and spectrum," said Uppal.

India, home to more than 240 million mobile phone customers, is the fastest growing wireless market in the world, adding some eight million customers every month.