Government fiddles with 3G auction price again

Following an the advisory issued by the ministry of finance, the department of telecommunications has hiked the reserve auction price for the long-awaited allotment of third generation of 3G spectrum to Rs3,540 crore. The DoT has reportedly doubled the reserve price for the A-category circles that include Delhi and Mumbai while retaining the earlier proposed price for 'tier III' cities.

Industry watchers feel that the move, aimed at breaking the deadlock over the reserve price for 3G spectrum between the finance ministry and the DoT, will only bring another round uncertainty between telecom operators and the government.

The DoT is expected to auction eight slots of 5MHz of 3G spectrum to the successful bidders. Communications and information technology minister A Raja had earlier said that he is set to table the proposal before the union cabinet to get the auction going at the earliest.

The reserve auction price for pan-India 3G spectrum was earlier set at Rs2,020, and the number of players per circle was fixed at five. Now, the DoT has recommended increasing the reserve auction price to Rs3,540 and increasing the number of players per circle to eight.

According to the department, the increase in the reserve auction price and the total number of players per circle will help the government to achieve its revenue target of Rs40,000 crore from these auctions. According to DoT, the hike in the reserve price will appease the opposition and help speed up the auctioning process of 3G spectrum.

But as the Economic Times points out in an editorial, the 3G spectrum auction runs the risk of getting caught up in yet another futile debate over the reserve price. The government would do well to focus instead on removing the uncertainty around the 3G regime and make enough spectrum available.

If the terms of the 3G services are attractive then the realisation in the auction is likely to be several times the reserve price. But by proposing that as many as eight 3G slots be auctioned – with just 5MHz of 3G spectrum – DoT is diluting quality and preventing the provision of quality 3G services. Internationally, 3G service providers get about 15 MHz of spectrum.

State-owned telephony service providers MTNL and BSNL have already been allotted 3G spectrum (See: BSNL launches 3G in 11 cities; cuts landline rates to 33 paise a minute).  

However, in the absence of clarity about the norms and quality of services, their 3G service has found few takers.