There is a high possibility that the sale of 2G spectrum, which was slated to close by August 31, 2012 as directed by the Supreme Court, will get considerably delayed. That said, the Department of Telecommunications (DoT) is keen to kick-start the spectrum auction process and has released a set of initial guidelines to be followed for the same.

According to DoT, the sale of spectrum will be simultaneous, with multiple rounds of auction for each region, similar to the 3G spectrum auction held in 2010. Also, as per the guidelines, eight blocks of bandwidth in the 1800 MHz band will be auctioned. Each block will be of 1.25 MHz, and the spectrum auctioned will be valid for 20 years.

“However, the period of 20 years will be subject to the licensee acquiring a unified licence after the expiry of the existing one. The entry fee paid will be adjusted on a pro-rata basis, on one occasion only when the licensee converts the spectrum into liberalised spectrum,” the guidelines note.

GSM operators worldwide use the 1800 MHz and 900 MHz frequency bands. In India, currently, these bands are used to provide 2G mobile services. However, after the spectrum sale, operators can use the 1800 MHz frequency band to offer any technology, including 3G and 4G services.

For existing GSM operators, DoT prescribes that they should bid for a maximum of two blocks, which translates into 2.5 MHz frequency. Those holding spectrum in the 1800 MHz frequency band can pay the auction-determined price and extend the tenure of their licence by 20 years. This will be particularly useful for GSM players whose licence term is set to end shortly.

On the other hand, new players who have lost their licences on account of the Supreme Court ruling (cancelling the 122 controversial 2G licences awarded in 2008) can bid for a maximum frequency of 6.25 MHz in the 1800 MHz band. “They can bid for 5 MHz of airwaves in the 1800 MHz band, but will be allowed to bid for one additional block of 1.25 MHz, enabling them to get a total of 6.25 MHz of airwaves,” the guidelines state.

In the CDMA segment, the new players can bid for a maximum of three blocks (3.75 MHz) in the 800 MHz band while existing operators can bid for only one block.

While DoT has set the tone for the auctions with these broad guidelines, it has remained silent on  key issues preceding the auction such as the base auction price, the terms of payment, annual spectrum usage charges and service roll-out deadlines. Most of these are controversial issues and require the government to take a final call.

Of these, spectrum pricing remains the most contentious. Earlier in the year, the Telecom Regulatory Authority of India  had recommended fixing Rs 180 billion as the base price for 5 MHz of pan-Indian 2G spectrum. However, the telecom companies found this too steep and began lobbying aggressively for a reduction of at least 80 per cent in the reserve price. They feared that the high price of 2G spectrum would stymie growth and adversely affect the prospects of telecom companies, which are already under tremendous pressure. Also, analysts point out that setting such a high price may deter bidders from participating in the auction.

Another important issue that has been hanging fire is DoT’s intention of asking existing operators to pay a one-time auction-determined price prospectively for the excess spectrum they hold beyond 4.4 MHz or 6.2 MHz. According to DoT, this is important as it will create a level playing field between the new entrants and the incumbent players.

Besides, the one-time fee will generate significant revenue for the exchequer as GSM incumbents such as Bharti Airtel, Vodafone, Idea Cellular, Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited reportedly hold over 10 MHz of spectrum in many circles. Operators have been up in arms against this.

The issue was discussed at the cabinet level, but  no decision was reached. DoT, in its cabinet note, stated that it was important to charge existing players for the excess spectrum in order to ensure future growth of the sector. It further pointed out that the base price for the spectrum auction should be fixed only after a decision is taken on charging operators for excess spectrum as it would play a big role in the bidding process. “The final decision of the government regarding application of a one-time charge to their current spectrum holding, in part or in full, needs to be made known before the proposed spectrum auctions so that they can take an informed decision while bidding. The decision, therefore, is required well before the commencement of the actual process of auctions,” the note to the cabinet reads.

Three options were suggested in the note – to impose a one-time fee on all the airwaves held by the incumbents; to levy this fee on spectrum held beyond the start-up spectrum of 4.4 MHz; or to levy this fee on spectrum held beyond the contracted 6.2 MHz.

Both the Planning Commission and the finance ministry opposed DoT’s note as they felt that such frequent changes in the licence terms could impact investor sentiment. Also, according to the finance ministry, DoT’s argument for providing a level playing field is not realistic as technology and software have advanced so much that higher efficiency and lower costs can be gained by the new players, which the incumbents did not have access to in their time.

The Planning Commission also argued against DoT’s case for seeking a level playing field. “Fair treatment is certainly essential, but the desire to create a level playing field cannot be transformed into a search for the “Procrustean Bed” in which all past advantages of the incumbents are sought to be equalised. All industries see new entrants entering at different times,” noted the Planning Commission.

As there was no consensus on the matter, the union cabinet referred it to a newly constituted empowered group of ministers (EGoM) which will reportedly be headed by Salman Khurshid, union minister of law and justice, or Anand Sharma, union minister of commerce and industry.

Meanwhile, the existing EGoM, which has to decide the reserve price and the quantum of spectrum to be awarded in the upcoming spectrum auction, apart from whether to allow telecom companies to mortgage spectrum to lending banks, among other issues, is facing a roadblock. It has not been able to function since late June 2012 when the then finance minister Pranab Mukherjee had to step down as chairman of the EGoM because he was selected as a presidential candidate. Thereafter, Sharad Pawar, union minister for agriculture, was elected to head the EGoM, but he resigned, stating that attempts had been made in the past to unnecessarily drag him into the 2G spectrum scam. As of now, P. Chidambaram has been appointed as chairman; however, he is yet to preside over any meeting.