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India considers spectrum allocation overhaul as treasury calls for new auctions

India’s Department of Telecoms could introduce new legislation relaxing the pricing structures for the country’s operators, according to Telecoms Minister Kapil Sibal. Speaking in an interview, the minister noted that while telecom services could not become prohibitively expensive for the country’s poorest inhabitants, at the same time operators should not have to sacrifice profit.

"Ultimately, technology is meant to serve a public purpose, so that objective cannot be lost… There was a time when the price of a telephone call was 90 rupees; now it’s 50-60 paise," he said. "At the same time, the operator must get a return on his investment that is attractive, and the industry must prosper.”

Although nothing is yet confirmed, Sibal noted that changes in legislation would be focused on encouraging consolidation in the sector. Mergers in particular are often made difficult by various legal constraints, resulting in many Indian markets hosting over ten competing players - Sibal has suggested that each market should have only around six.

He also confirmed that certain restricted spectrum frequencies will also be freed up, as well as stating that new legislation would facilitate spectrum-sharing and outsourcing agreements. On the subject of spectrum, Sibal stated that prices would be regulated by a “market-based” mechanism in an attempt to renew faith in the country’s spectrum licensing processes following the 2008 2G spectrum pricing scandal.

Under the new system, large-scale bidding processes akin to last year’s 3G auctions would likely become a thing of the past, with Sibal saying “the big companies who have deep pockets only want an auction because they can snuff out everybody else.”

Without making any specific confirmations, Sibal discussed potential changes such as the possibility of charging the biggest operators higher rates – or a standalone payment – for their spectrum, saying “this much is clear – it’s not going to be free anymore.” He also suggested that technology-neutral licences could be beneficial for subscribers: “We must move toward a technology neutral regime, in which the licensee is entitled to use any technology he wants. The licensee should be able to tailor-make his business to the needs of the consumer.”

While a target date for the introduction of such reforms was not mooted, it may be sooner rather than later as the Indian treasury has called for the Department of Telecoms to sell the remaining 3G spectrum by the end of this fiscal year. There is a reported 20MHz of available 3G spectrum that could fetch a significant sum – which would, the Finance Ministry claims, avert a potential cash shortage within the government.

The fees collected from 2010’s 3G and BWA spectrum auctions were far greater than anticipated – over US$20 billion – and this has prompted the Finance Secretary Sushma Nath to implore that the DoT "explore and identify, expeditiously, surplus spectrum, which can be put to auction in 2011-12."

The yield that the treasury is anticipating from the telecoms sector is a sizeable INR30,000 crore (US$6.6 billion); the Finance Ministry expects to draw only around half of this sum from operator fees,  so it is evidently hoping that spectrum auctions will make up the 15,000 crore shortfall.

The government is reportedly also investigating another source of potential revenue – 700MHz spectrum, which can be used to deploy LTE networks. "We would be looking at all routes to raise revenues... auction of spectrum could be one such source," said a Ministry spokesman.

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