Consumers may have to wait till 2011 for 3G services with the law ministry derailing 3G auctions last week with some hard logic. However,  DoT sources reveal that the real story behind the 3G delay lies in the breakdown of inter-ministerial discussions on 3G spectrum availability coupled with the industry’s disinterest.

DoT officials say the law ministry has recommended that DoT either only auction two pan-India 3G slots for which spectrum is readily available or wait till the entire spectrum for four slots is released by defence. DoT wants to auction all slots now and allocate spectrum whenever available.

The law ministry warns that any delay between auction and actual spectrum allocation will mean discounted bids on account of the risk factor, leading to a revenue loss and the threat of litigation against the government. The TOI was the first to point out these realities it its December 25, 2009 edition.

Industry sources question why the government has reached this conclusion nearly seven months after the EGoM was first formed to resolve 3G issues as such basic legal advice would be available for the asking at a very preliminary stage. Industry itself is reluctant to invest in 3G just yet, as it means an outlay of upto Rs 6,000 crore for the auction and an equivalent amount for network rollout.

Telcos would rather decide on 3G after Trai announces its M&A guidelines in order to evaluate the relative advantage of acquiring additional spectrum through M&A or through the auction. The disinterest is driven by the fact that India continues to be primarily a voice market nullifying any major upside in revenues from 3G services. This means companies will increase their spectrum holding from the cheapest, fastest and easiest source rather than just depend on 3G auctions.

Incumbent operators Vodafone, Bharti, Idea and Aircel have sufficient spectrum in high subscriber-growth areas mostly rural and semi-urban India. Even with a so-called spectrum shortage, India clocked 19.1 million subscribers in December 2009 — a world record.

Auspi has officially supported the governments’ decision to delay 3G auctions. Its members, dual technology operators Reliance and Tatas are in the early stages of building new networks and would much rather get their allocated 6.2 MHz of 2G spectrum before acquiring 3G.

Further, there are 120 LoI holders who received 2G spectrum after January 2008. These firms have either sold their licences at a premium to foreign entrants like Telenor or Etisalat or hope to do so after Trai’s M&A guidelines are announced. It would seriously damage their interest if the supply of spectrum was augmented through 3G auctions.

Lastly, global players have stated their disinterest in 3G auctions because of a discriminatory Rs 1,651 crore UAS licence fee without the guarantee of 2G spectrum that will be imposed on new bidders alone. Further, since they do not believe there is a 3G-only business case, they seek clarity on the M&A review as also spectrum sale and transfer guidelines.

Source:timesofindia