The Union government has lowered its minimum revenue expectation from the auction of high-speed 3G, or third generation, spectrum early next year by 10-20%, according to two officials.

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The government had expected at least Rs35,000 crore from the auction, but a finance ministry official said even if the revenue from this was lower, it would be offset by manufacturing-led tax inflows.

“Internally, they have reduced the minimum expectation by around 10-20% to around Rs25,000 crore," a senior official in the department of telecommunications (DoT) said. “But it is nothing to worry about. We are sure that the auction will not fall short of expectations. This is just the minimum expected price."

The finance ministry has not revised its budget estimate of revenue inflow from the 3G auction, but internal expectations have been marked down on account of developments in the telecom sector.

India’s fiscal deficit would remain unchanged, the finance ministry official said, as a pick-up in manufacturing would boost revenue from corporate taxes and central excise. Both the officials spoke on condition of anonymity as they are not authorized to speak to the media.

The fiscal deficit for the Union in 2009-10 was estimated to be 6.8% of the gross domestic product in the budget estimates, or Rs4 trillion in absolute terms. Since then, the finance ministry has said the government will not overshoot this estimate.

“The government has estimated earnings at a minimum level by taking into account the reserve price... Given the artificial scarcity that DoT has created by not allocating spectrum for the last so many months, the final auction prices should be far higher than the reserve price," a senior analyst with the Mumbai-based branch of an international brokerage said on condition of anonymity. “The government will still make its money but the viability of 3G services in a market with so many other problems may take a while to be seen," he added.

Poor reception: The finance ministry has not revised its budget estimate of revenue inflow from the 3G auction, but internal expectations have been lowered on account of developments in the telecom sector. Rajkumar/Mint

The government said the air waves currently available with it for the auction could accommodate only three operators in this calendar year, as the defence ministry refused to vacate the required spectrum immediately.

In August, an empowered group of ministers (EGoM) had decided four slots of spectrum would be auctioned. One slot of 5MHz has already been allotted to state-owned telecom operators Bharat Sanchar Nigam Ltd, or BSNL, and Mahanagar Telephone Nigam Ltd, or MTNL.

The EGoM has fixed the reserve price of a slot of countrywide 3G spectrum at Rs3,500 crore and Rs1,750 crore for broadband wireless access (BWA) spectrum.

The auction is now scheduled to begin on 14 January.

3G spectrum refers to the spectrum needed for telecom firms to offer services that enable higher capacity for mobile networks and faster data transfer speeds on mobile phones. BWA spectrum is needed for Wimax-based services—short for worldwide inter-operability for microwave access, a standard that is capable of data speeds of 10 megabits per second up to 2km away from a radio transmitter.

Another DoT official said 10MHz of spectrum has been vacated. Another 5MHz would be given by June and an additional 5MHz in September. This would mean only three operators apart from MTNL and BSNL would be allotted 3G spectrum in the current fiscal.

The government is now also contemplating allowing successful bidders from the auctions to pay only 25% of the bid amount initially and pay the rest on receiving the spectrum.

DoT, in an internal note on the renewed number of slots, said, “Good auction practice requires that only spectrum that is available should be auctioned. As there is a maximum of 20MHz available from (the) defence (ministry) by September 2010, 5MHz out of this should be retained for BSNL/MTNL and 15MHz (3 blocks of 5MHz each) could be auctioned in this fiscal year with the provision that bidding would be for three blocks of spectrum, pan-India."