29 Sep 2009, 0223 hrs IST, Joji Thomas Philip, ET Bureau
The Information Memorandum (IM), set to be released to potential bidders in a couple of days, says new entrants that successfully bid for 3G frequencies will also be eligible for 2G spectrum, used by the current crop of mobile service providers in the country.
The document, which contains details of the 3G auctions scheduled for December 7, however, says the allocation of second generation airwaves will be ‘subject to availability.’ ET has accessed a copy of the document.
The 3G spectrum is essential for offering value-added services such as video conferencing and ultra-fast internet on mobiles, interactive gaming and high-speed downloads. Currently, only state-run telcos BSNL and MTNL offer 3G services in the country.
Global telecom companies, which do not have a presence in India, have so far maintained that they would not enter the 3G race here unless they are allowed to offer full-fledged mobile services.
But this concession may not ensure the participation of foreign telcos. “We will require more information on the terms of the licence and clarity on clauses such as ‘subject to availability’,” an executive with an international telco said.
The telecom department (DoT) can allot fresh 2G spectrum in many circles, only if the defence forces vacate the same and existing operators are already waiting for fresh allotments, he said, requesting anonymity.
There are over 300 2G applications pending and foreign telcos do not stand a chance if they are asked to join the queue, he added. So far, 2G spectrum has been given to all existing telecom operators for free, based on them meeting certain pre-defined subscriber numbers.
The document also says DoT has asked the finance ministry to extend tax soaps to successful 3G bidders. Permission has also been sought to allow telcos and internet service providers to raise funds for WiMAX auctions through the external commercial borrowings (ECB) route. Earlier this year, the Reserve Bank of India (RBI) had allowed telcos to raise up to $500 million through ECBs for 3G auctions.
Last month, a ministerial panel had broken the deadlock over the reserve price for 3G spectrum, fixing it at Rs 3,500 crore. The minimum bid amount for WiMAX (mobile broadband) was set at Rs 1,750 crore.
The government had clarified in its 3G policy that international telcos, which do not have operations in India, can participate in the upcoming 3G auctions, while adding that successful players would have to acquire a telecom licence (also called unified access service licence or UASL) before they can begin operations.
A UASL in India comes bundled with 4.4 MHz of start-up 2G spectrum. DoT has, so far, failed to clarify if international operators that win 3G spectrum will be given this 2G startup spectrum when they obtain the UASL.
As per the country’s 3G policy, successful bidders will get 5 MHz of third generation airwaves. While this may not be enough for a new player entering the telecom market as it will require additional start-up spectrum, it will be enough for existing GSM players to migrate to 3G.
The DoT also has asked the finance ministry to treat the 3G operator’s licence fee as expenses over a 20-year period, the document says. This implies, telcos can deduct this amount in 20 equal annual installments from their profits and pay taxes only on the remaining sum, considerably reducing their tax outgo.
Telcos should deposit an earnest money of Rs 505 crore to participate in the 3G auctions on a pan-India basis. The new entrants, which will provide only 3G services, must share 3% of their annual revenues with the government as spectrum usage fee while incumbent operators entering the 3G space will have to share an additional 1% of their revenue for using the airwaves.
Telcos such as Bharti Airtel, Vodafone Essar and Idea Cellular, which currently pay 2-6% of their annual revenues as spectrum user charge depending on the amount of radio frequencies they hold and the area of operations, will have to share an additional 1% of their revenues, if they win 3G frequencies.
The document also says that MVNOs, service providers that do not own any cellular infrastructure, will be permitted in the 3G space too. UK-based Virgin and BT Mobile and Japan's KDDI have based their telecom strategy on the MVNO model.
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