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India’s 3G auction begins - three top bidders get spectrum in 17 circles

The Hindu, one of India’s leading newspapers, has published a report on recent progress towards the auctioning of 3G spectrum. We summarise the key intentions in what has been almost a comedy of errors as cancellations and other factors have resulted in distrust and lack of confidence.

Developing Telecoms stopped reporting India’s progress towards 3G availability several weeks ago, as we got to the stage where the frequent postponements meant that we could not advise our readers on when 3G was going to be available with any degree of certainty.

In the last few days, The Hindu, a leading Indian newspaper, has summarised the latest statement from the Indian Government detailing the timetable towards the 3G auction and licensing process.

Applications are now being invited from telecom operators who want to bid for 3G - and also Broadband Wireless Access (BWA) - spectrum. April 9 will be the starting date for the actual auctions.

The legally-valid Notice Inviting Application (NIA) released by the Department of Telecom states that 3G spectrum will be granted to the three top bidders in 17 circles. A further five circles will each have four players, excluding state-run BSNL and MTNL. Each of the above-mentioned circles will also have “space” for two operators requiring air waves for broadband services.

Where the Government of India will not be proceeding for the near future is in the area of 800 MHz or 1900 MHz CDMA - there will be no auctions for now at least in the two frequencies mentioned. If a CDMA player does wish to bid, then 2.1GHz will still be available. This was immediately commented on by CDMA representatives who urged the Government of india to provide a “growth roadmap” for the CDMA players.

Another issue which has not been totally resolved is that of interference on spectrum. This led to one of the postponements in the 3G auction process, and was due to concern over a clash between civilian and military users occupying the same spectrum. BWA players, though, have access to two 2.3GHz slots.

The cost

The floor price for entry into all of the 3G circles is US$7770,000,000, that for all-Indian BWA US$185,000,000. If a new or foreign player wishes to bid, then there is an additional fee of US$363,000. If an operator is then successful, it must pay the sum required within ten days. This is despite the fact that successful operators can only start their service by September 1.

Existing players are also subject to additional annual revenues. 3G-only players must pay spectrum charges at 1% of their annual revenues; 2G/3G operators will pay one percentage point more on their existing rate. One example quoted by The Hindu is Bharti Airtel, currently paying charges of about 4-5% of revenues but soon to be paying 5-6% if they win at auction. The winners will be those who are new with just one spectrum - they even get a one-year moratorium on spectrum charges.

If two 3G players decide to merge their businesses, then they will be allowed to keep just one 5MHZ slot - the other will have to be surrendered. A further condition is roll-out whereby operators have to cover 50% of each district within five years.

Licenses will be valid for 20 years unless revoked or surrendered.

Timetable

Information over and above that mentioned in The Hindu has been released. The time-scale for the auction is as follows:

*last date for submission of applications to become a bidder: 19 March 2010;

publication of ownership details: 23 March;

issue of compliance certificates: 26 March;

pre-qualification 30 March;

mock auction to testing the system: 5–6 April;

3G auction start: 9 April 2010;

BWA auction: two days after close of 3G auction;

payment will be due within ten calendar days of the auction close.

Auction process

The auctions will use a simultaneous ascending e-auction system conducted over the Internet. There will be two stages to the auction, with the first a multi-round "clock" stage allocating a single block of spectrum in each service area to winning bidders. The clock stage sets a "common winning price" for all blocks within the service area.

A second frequency identification stage will identify the specific frequencies for winning bidders. These will be assigned by a "…random identification of frequencies performed automatically by the Electronic Auction System" although the right is reserved for the Indian Government to change frequency allocation at any point in the licence duration for band harmonisation or spectral efficiency.

Deployment obligations

In metro service areas, 90% coverage will be required within five years of the effective granting/spectrum availability date. In category A, B, and C service areas at least 50% of the District Headquarters (DHQ - or in lieu of this any other town in the district) in the service area will be covered using the 3G spectrum, while out of this at least 15% of the DHQs should be rural Short Distance Charging Areas (SDCAs), within five years. Failure to do so in year one will require a payment of 2.5% of the bid amount per quarter and the licence could then be withdrawn after one year.Developing telecoms is grateful to The Hindu and other sources for the information in this report. We hope that this will be the last briefing on Indian 3G auctions we will have to provide and that the slow and complicated process to the auctions has run its course.

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