3G winning bid to be new base price for spectrum

3G winning bid to be new base price for spectrum

New Delhi: The auction of spectrum for third generation, or 3G, mobile phone services will set an interesting precedent in India’s telecom sector that could push up bid prices at the next sale of the precious radio waves needed for faster data transfer and better voice quality.

The highest winning bid in the auction, whenever it takes place, will be the floor price for the next auction of spectrum, said a senior official in the department of telecommunications (DoT).

“The bidders had asked for clarity on the timing of the next auction and the reserve price. We have to protect the interest of the bidders in this auction," the official said. “These details of the next auction are necessary for them to decide on their strategy for this auction. We cannot say whether the next auction will happen in the next 12 months but the reserve price will be the winning price of this auction."

The official didn’t want to be named because he isn’t authorized to speak to the media. That the highest bid at the 3G auction would be the reserve price at the next auction has also been mentioned in the replies given to queries from potential bidders at the pre-bid conference held in December by DoT. Copies of the replies were reviewed by Mint.

The development is significant given that spectrum has been scarce since the government stopping allocating additional radio waves to telecom operators in May. The allocation was stopped by DoT at the request of the finance ministry after a committee on spectrum management recommended that all spectrum be auctioned.

“The lack of additional spectrum will lead to higher bids. Looking at the number of slots available in some circles it is quite possible that there may be another auction soon—at least in some circles—due to the demand," said an analyst with the Mumbai branch of an international brokerage firm who didn’t want to be named because he isn’t authorized to speak to the media.

India’s mobile phone subscriber base has been rising by at least 16 million every month, making the country the world’s fastest growing cellular phone market. The huge rise in subscriber base without any additional spectrum being allocated has led to congested mobile networks, particularly in big cities.

Brokerage analysts tracking India’s listed mobile phone firms Bharti Airtel Ltd, Reliance Communications Ltd and Idea Cellular Ltd expect these firms to bid around twice the reserve price of Rs3,500 crore for 3G spectrum across the country.

This would mean that the reserve price for 5Mhz of 3G spectrum across the country could be as much as Rs7,000 crore in the next auction, making it difficult for the smaller telecom operators to bid in the next auction.

“The auction of spectrum is being done to determine a market price for spectrum. A reserve price is just to make sure that the bids are not too low. The reserve price should be low, but not too low, so that more operators can participate. Spectrum is scarce so the bids will be high this time around as there is a huge demand," Mahesh Uppal, a telecom regulatory expert and director with consulting firm Com First (India) Pvt. Ltd said.

DoT, in order to encourage competition, is also likely to impose a ban on mergers between telecom operators who win spectrum in the auction.

The auction of spectrum was to be held on 12 February, but has been indefinitely postponed. The empowered group of ministers, or eGoM, on 3G, which was to approve the terms of the auction at its last meeting on 12 January, was unable to come to a consensus on some issues. eGoMs are ministerial groups that take policy decisions, especially on knotty issues.

“The finance minister (chairman of the eGoM) will now take a final call on whether the eGoM should meet again and decide or he will decide himself," the DoT official added.