Tuesday, March 25, 2008

India - 3G

A step ahead for 3G

The Department of Telecom’s (DoT) draft policy has reportedly proposed that third generation (3G) telecom services be opened to existing and new operators through an auction, allowing them to bid for a maximum of 10 MHz of spectrum in two tranches of 5 MHz each.

The proposed policy departs from Trai’s September 2006 recommendation that existing operators get priority in spectrum allocation for 3G services.

The existing telecom (2G) players have argued that 3G services are in some ways an extension of 2G services and, therefore, they should get some priority and be allowed to evolve into 3G players. While it may be true that 3G is a vastly improved version of 2G network, it does not automatically give 2G players a pre-emptive right over 3G spectrum.

The auction based pricing of 3G — as opposed to a fixed below-market fee for 2G, which is rationalised as necessary for making telecom services affordable — means that 3G would have to focus on value added services, for which it is better suited.

Meanwhile, 2G would largely remain an affordable voice and low end value-added service. This makes 3G a service distinct from 2G, as business models would have to be different. Given that, it is only logical that the auction be thrown open to everyone.

In such a situation it also makes sense to offer spectrum in blocks of 5MHz and a maximum of 10MHz, as opposed to 5MHz recommended by TRAI. Existing operators already have the start-up spectrum and can manage with 5MHz of 3G spectrum. A new operator, on the other hand, will need a start-up spectrum as well and, therefore, would have the leverage to bid for up to 10MHz of spectrum.

The condition that new players would have to acquire a unified access service licence for Rs 1,651 crore to be eligible for bidding creates a level playing field. The policy continues to reserve one slot for state-owned players, but they will have to pay the bid amount if successful, or match the highest bid in case they fail to secure a licence.

This is a more equitable way of reserving a slot for PSU players than giving spectrum for free. The stiff rollout obligations would discourage spectrum hoarding. DoT should quickly freeze the policy and get 3G rolling through a well-designed auction.

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