-

The 3G spectrum auction is in for a short delay. Slated to take place in December 2008, it has been deferred till January 2009. According to the Department of Telecommunications (DoT), there are several reasons for the delay, the chief among them being a shortage of spectrum in 9 out of 22 circles. However, Communications and IT Minister A. Raja has clarified that the auction is not likely to be delayed beyond January 15.

As per the new timeline, DoT is targeting to sign contracts with successful bidders and receive the first tranche of auction money (25 per cent of the total) before endJanuary. In line with this, consultations with stakeholders, auction design, preparation of bid documents and design of the auction site by e-auction agency NM Rothschild are currently in progress.

Subsequently, DoT will invite bids and undertake testing of the auction platform and software. This is expected to be completed by mid-December and thereafter auctions will be conducted in all the circles and the winners announced by mid-January.

With the finance ministry stepping up the pressure to complete the auction process, DoT cannot afford any further delay. Not only is the finance ministry unhappy with the reserve price at Rs 20.2 billion for a pan-Indian 3G licence, it is also against DoT's proposal to split 2G and 3G revenues. It feels this will lead to disputes as well as loss of revenue for the government.

However, DoT does have its own constraints. The defence forces have delayed freeing up spectrum. DoT has been in regular talks with the authorities to get spectrum vacated in the 2.1 GHz 3G band in the nine circles. "We do not have enough spectrum in the 2.1 GHz and 2.5 GHz bands (for Wi-Max). We have one block of 25 MHz and another of 15 MHz, which we are trying to exchange for two blocks of 20 MHz each. Currently, discussions are going on with the Department of Space, but no final decision has been taken yet," say DoT officials.

DoT is also in talks with various public sector organisations occupying the 2.3 GHz band (for Wi-Max) to ensure that at least 40 MHz is available for the auction. Apart from spectrum, the other hurdle that DoT is likely to face is the possible lack of foreign participation in light of the global financial meltdown. This could delay the 3G auction process as the government expects to rake in at least Rs 400 billion from the 3G auctions.

To ensure that the global economic crisis does not adversely impact the upcoming 3G auctions, DoT has indicated that it is not averse to relaxing some of the auction guidelines to make it easier for operators to participate. One of the options being considered is to ask bidders to pay only the reserve price upfront and the rest in equal instalments later. These proposals are, however, still at a nascent stage and specific dates have not been fixed by DoT to evolve either a quarterly or a biannual payment mechanism.

DoT's rethinking on the auction guidelines has come after telecom players expressed their apprehension over raising the bid money due to the liquidity crunch. UK-based mobile major Vodafone, for one, asked for the 3G spectrum auction to be delayed in light of the global financial crisis. The company wrote to DoT saying that mobilising funds in the current economic environment is proving to be an extended process and borrowers could expect the loan exercise to take at least three months. "We are informed that many international banks will struggle if a financial commitment is required before the year-end. Scheduling the auction in early 2009 would avoid this problem and the European and US holiday season," stated Neil Gough, director, public policy, emerging markets, Vodafone.

Operators have also approached the finance ministry to seek relaxations to raise funds through the external commercial borrowing (ECB) route. With the Reserve Bank of India announcing that telecom operators could raise as much as $500 million through the ECB route for participating in the 3G auction, the Cellular Operators Association of India and the Association of Unified Telecom Service Providers of India stated in a joint letter to the Ministry of Finance that the limit of $500 million per borrower per financial year should be increased to equal the total cost of acquiring spectrum for 3G mobile services. The two associations are also requesting that the funds raised through the ECB route should be allowed to be used for acquiring spectrum for broadband wireless services as well.

In all, while DoT is hoping to close the auction process by January 2009, analysts expect the process to take longer. They do not see spectrum availability or the liquidity crunch straightening out any time soon.