May 26, 2005
(Economic Times via NewsEdge) India’s Ministry of Finance has asked the Department of Telecommunications (DoT) to allocate a 3G spectrum to mobile operators through the auction route.
According to the ministry, it is DoT’s responsibility to price spectrum as per international practices, citing the example of Europe and the US, where governments fetched billions of dollars in revenue by auctioning spectrum.
The ministry has also said that pricing of spectrum should not be in TRAI’s domain. The finance ministry has taken the position that pricing of radio spectrum is not a regulatory issue, and hence, should not have been referred to the telecom regulator.
Instead, it has argued that receipts from radio spectrum should accrue to the government as non-tax revenue.
C 2005, The Economic Times
Understandably, the finance ministry is salivating at the prospect of raking in billions via 3G spectrum auction. But at what cost to the telecom sector?
Agreed that 2005 isn’t 2000, when European operators high on the tech bubble and generous bank-rolling spend $50 billion in Germany and $35 billion in the UK for 3G licenses. At the end of the day the bidders realized that it would take years before they start making a profit from 3G services along with being straddled by monstrous debts and no money to roll-out 3G infrastructure.
May be the Indian operators are smarter than that and may have learnt their lessons.
If they use that money for network rollout in high cost areas, then may be not a bad idea…
An after-thought–considering the billions of $ lying unspent from ADC for network rollout in India, unlikely that auction money will be spent in a hurry on network-rollout.
I do not conform with TRAI’s recommendation either, which essentially means giving away the spectrum for free. Input subsidies for Universal Service obligations is not the right way to go about. History is replete with examples as to how input subsidies lead to perverse outcomes. A properly designed auction can take care of the Winner’s curse problem as well as lead to efficient allocation.
I am not surprised that the Finance Ministry has asked for proper economic allocation.
So you would support the auction money going into the blackhole of the govt treasury? So that the govt can continue its profligate ways? So that it has another pot to dip from for funding thousands of inefficient subsidy schemes?
I don’t believe in giving away the spectrum for free either. But I would rather that the money stayed in the ICT sector. For example, if this money could be used for wiring public schools, providing PCs and training PC literate teachers, it would do more good than spending it on subsidies to fertilizer companies.
The Indian Left is also against giving giving away free spectrum. But they seem a confused lot:
The Indian govt is eyeing $2 billion from 3G auction. The editorial below speculates that the spectrum is sufficient to allow 7 players, however, urges policymakers to consider new entrants instead of giving it to only existing operators.
New foreign companies will be allowed to bid for 3G spectrum that will be a separate license from whatever has been issued until now, according to the Indian Minister. The 74% foreign ownership will be in force so new foreign bidders would have to partner with local providers. Currently India has 12 mobile operators using GSM and CDMA technologies. The Indian Minister has been quoted as saying the following:
“We want new international players to come to India and offer their services,” the Mint daily quoted Communications and Information Technology Minister Dayanidhi Maran as saying.
If that is indeed an objective, I would venture to say that the Minister may be disappointed. Without a 2G license and spectrum any new foreign operator will be clobbered before they even get off the ground. New entrants will be competing with a substantial number of operators who have network infrastructure already in place in the most lucrative markets where 3G may be viable. Where growth opportunities do exist, like in the rural hinterlands, 3G may be commercially unviable unless radical business models are evolved.
Operators who I have spoken to in countries that have introduced 3G services have said that typically a new 3G subscriber will be an existing 2G user. Their experience indicated that it is highly unlikely for first time mobile user to be a 3G subscriber. The incumbent operators in the Indian market already have an existing 2G base that they can persuade to upgrade to 3G. A new entrant with no 2G base and no brand recognition will have to vie to convert 2G subscribers from other operators into 3G subscribers of its services. That is an uphill task. If 3G new entrants are also given 2G license they may have a chance to find their legs before transitioning to 3G services. This is what Hutch, a new 3G entrant in Indonesia is doing.
If the Indian govt is serious about attracting new players, it must rethink its current strategy. They also need to sort out spectrum scarcity issues…
More here: http://uk.reuters.com/article/technologyNews/idUKBOM23990520070426
Looks like one of the longest waits in History! In Feb 2008, we are still talking of the present users of spectrum ( defence) being asked to vaccate it before someone can take a stock how much is available.
The spectrum auctions in the 700 Mhz band in the USA have shown that auctions are the best and most transparent way to allocate spectrum. In fact the ascending auctions with multiple rounds is the best way rather than a closed auction ashas been recommended by TRAI for India.
3G is sorely needed for a range of mobile services including Mobile TV.
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