After so much of controversy, it seems 3G is all set to ring in India. The Department of Telecom (DOT) is no mood to sell it cheap and has decided to opt for a “controlled ascending” auction for allotment of 3G spectrum rather than the one based on subscriber which was used in case of 2G. There are still lots of questions unanswered by DOT regarding the players who will be eligible for bidding. In the write up below, I have tried to analyze the pros and cons of inviting bid from new players and the unique method to be adopted in auction.

There are many uncertainties involved regarding the players who can bid for the 3G technology in India. Though the process in which the allocation is to be done is made public but DOT is still unclear about the players who can bid for the same. There are three parties involved in this tussle – (I) between the existing operators in the circle and those operating in another circle and want to bid for a new circle (II) between the Indian operators and the foreign players who are keen to enter into India.

Existing players don’t want to share the space with new players and their plea is that spectrum being a scarce resource should preferably be allocated to them. For the starters, the frequency on which the 3G technology thrives and the one used by defense and other association is same and this makes it scarce. Secondly, the existing player are also of the view that taking into account economies of large scale they will be able to provide services at a much cheaper rate which to a certain extent is a logical reason.

The point made by the new players who are not operating in a particular circle for which they want to bid is pretty interesting and it outweighs the logic sited by the existing players. Since telecom is the most emerging and dynamic industry in India, new and small players can not be completely ignored by regulatory bodies. If they are not treated at par with existing giants it may lead to cartelization and a situation of complete monopoly thus pulling more money from the pockets of consumer, the king. In other words, we can say that it is something like “big is getting bigger and small is getting smaller”. There is no point in barring someone from bidding or giving any preference to another party. The ideal model would be to keep the bid open for everybody and let the market force decide the price. One thing is for sure that more the number players in the market, cheaper the services that will be offered to consumers. This does not involve any rocket science and is normal business model. Inviting bids from more number of players into the foray also means more money into the government corpus that will be received through allocation process.

Another major issue is inviting bids from the foreign players for 3G services. I personally feel that foreign bidders should also be given an opportunity to land up in India as their potentiality will pose a tough competition for giants in India unlike the small players. They are also capable of making huge capital expenditure required in infrastructure and network building. We can count on their experience which is lacking in new small players in India. But the interest of small players should not be overlooked for the sake of introducing foreign players in India. May be, Department of Telecom can come out with a separate policy for foreign players which calls for higher bidding price from foreign players. But inviting bids from foreign players is also a possible option and should not be refuted without any consideration. There should be a proper trade off between the interest of small players and entry of foreign players in 3G technology, whose potential to build infrastructure is unparalleled.

The process which has been decided for the allotment of 3G technology is adopted from US and was initiated by US Federal Communications Commission (FCC) spectrum auctions in 1994. The process is pretty interesting and takes care of the fact that bidders don’t quote any astronomical figure which is beyond their potential in a race to outbid the competitor. Furthermore, it does not take into consideration, the subscriber numbers of the operators as the criteria for allotment which is currently used for allocation of spectrum in 2G space and rule out any chances for small players. Let’s run around the process through which allocation will be made.

It is recommended by DOT that 3 GSM and 2 CDMA operators be allowed to provide services in a particular circle and one slot be reserved for BSNL/ MTNL which is public enterprise. The recommendatory base prices are $40, $20 and $7.5 million for A, B and C circles respectively. Let’s say hypothetically that there are 6 bidders for a particular circle. After the first bid, the lowest bidder will be eliminated. In the second round, the second lowest bid will become the base price and the bidders can increase their original bid. The elimination and bidding will process will continue till there are 6 bidders including BSNL/ MTNL. Finally, all the six players including BSNL/MTNL will pay the same price as bid by the highest bidder. The process also envisage complete transparency as it is an online bidding process which will disclose highest and lowest bids at the end of each rounds.

There is a great need of complete transparency in the regulations adopted by telecom regulatory bodies in India and any sort of intervention in favor of a particular party may pinch the pocket of the customer and may also spoil the party by being a roadblock in the unabated growth of telecom in India. The present scenario calls for a balance between the interest of players in the market and cost of services to the consumer.

(The author is a Chartered accountant working with TATA Teleservices Limited and the views expressed are personal.)

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