DoT offers compromise on auctions of 3G spectrum

Will scrap bid if it falls below govt’s revenue expectations.

The Department of Telecommunications (DoT) has suggested a compromise formula to resolve the controversy raised by the ministry of finance on auctioning spectrum, the radio frequencies that enable wireless services, for third-generation or 3G services.

DoT is preparing a note that says it will invoke its rights to cancel the bid in consultation with the ministry of finance in cases where the bid amount might exceed the reserve price but is less than the revenue the government expects.

This expected revenue will be fixed for each block of spectrum (5 MhZ) on an all-India basis in consultation with the finance ministry.

The government is offering four all-India licences (state-owned BSNL and MTNL have already been issued licences in Mumbai and Delhi) to incumbent operators and new bidders.

The finance ministry had recently suggested that the reserve price for the 3G spectrum auction should be doubled from Rs 2,020 crore to Rs 4,040 crore. It had asked DoT to revise the terms of the information memorandum and the policy.

The suggestion was reportedly driven by the fact that a lower reserve price could mean that the government will end up selling valuable spectrum for a premium service cheaply and fall short of its revenue target of Rs 30,000 crore to Rs 40,000 crore from the auction.

DoT has objected to the proposal saying this would only make the service expensive and the government would run the risk of unsold licences. Instead, it has argued that it has powers within the current 3G policy not to accept the highest bid if it does not meet the government’s revenue expectations.

DoT has referred to Clause 11 of the Information Memorandum, which says: “Government reserves the right to cancel the bidding process or disqualify any bidder without assigning reasons.”

DoT has also pointed out that the total reserve price as a percentage of GDP is in line with global trends in most other countries that have conducted 3G auctions. In India, the current reserve price constitutes 0.21 per cent of GDP, against 0.11 per cent in the US (this is the actual bid price), 0.50 per cent in Malaysia and 0.70 per cent in Thailand.

In India, DoT says, actual realisations from the bid would be much higher since the government expects operators to pay much more than the reserve price.