Mr Sibal, 2G auctions may not get Rs 40,000 cr; why not hurry on 3G?

Telecom Minister Kapil Sibal once again asserted this morning that he is confident of raising Rs 40,000 crore from auction of spectrum in the 1800 and 900 mhz bands which is slated for January. Sibal cannot be faulted for being over optimistic about the revenue generation potential for upcoming auctions.

After all, he has ensured that the base price for spectrum is a fraction of what it was in earlier auction rounds, big telecom players have been forced to participate in the auctions to win back any 900 mhz spectrum at all in key circles where their licenses are expiring and the minister has also made it clear that there is no license extension but renewal.

[caption id=“attachment_1253693” align=“alignright” width=“380”]  Kapil Sibal. AFP[/caption]

But Mr Minister, you seem to have forgotten one key factor: the moment your ministry increased the total available spectrum in the 1800 mhz band from 298 mhz to 403 mhz, chances of raising this huge moolah have receded. Here is why, despite Sibal’s best efforts, the Rs 40,000 crore figure may be hard to come by: Not all the 403 mhz of 1800 mhz spectrum may be sold.

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1. The 1800 mhz spectrum band is not really a very efficient spectrum band, which means telecom companies have to invest significantly more in using this spectrum than they would when using the far more efficient 900 mhz spectrum. So the inference we are drwaing is that the requirement for 1800 mhz spectrum may not be acute for incumbents.

2. As we have said earlier, almost half of the 1800 mhz spectrum that is being auctioned this time is non-contiguous. Non-contiguous spectrum means it is split into several chunks and is not a continuous block of 5 mhz. Non-contiguous spectrum is of no use to telecom service providers who might want to offer data services on 1800 mhz spectrum band, though it works just fine for voice services.

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A story in Mint newspaper yesterday said the January auction is expected to raise a minimum of Rs.36,385 crore for the exchequer in the 1800Mhz band alone, if it is all sold at the approved reserve price. “But that number needs to be seen in light of the fact that the government in November 2012 succeeded in selling little more than a third of the spectrum it offered, raising Rs.10,000 crore, one-fourth the expected amount. It failed to sell any of the spectrum it offered in March.”

A caveat here: it is possible that the auction of 900 mhz spectrum - which is much coveted - in three circles of Delhi, Mumbai and Kolkata may fetch much more than the reserve price. But one would still tread with caution over the Rs 40,000 crore Sibal has been throwing about.

We would like to make a suggestion to Mr Sibal here. Sir, instead of putting all your eggs in the 2G spectrum auction basket, why not hurry up with auctions of 3G spectrum and of 800 mhz band which till now was used for CDMA services?

It’s simple really. 2G airwaves support just voice whereas 3G spectrum supports voice, data, video besides facilitating services like mobile banking, video streaming, internet banking etc. More than 2G auctions, every telco is looking forward to more bandwidth in the third generation (3G) spectrum. Sector regulator TRAI had earlier suggested that there be another round of 3G auctions in the current fiscal - this is obviously not happening now.

Industry estimates suggest that the Government can raise $5-6 billion by auctioning 3 to 4 slots of 3G spectrum in 2.1 GHz band even at 50% of the last auction price (In 2010, one slot of 2x5 MHz went for $4 billion!).

Typical of the way we do things in India, the one and only round of 3G spectrum auctions held in 2010 did not manage to generate even a single telecom operator with pan-India spectrum. Except state owned telcos BSNL and MTNL.

So private telcos were forced to share spectrum in most circles, leading to an expensive and patchy data coverage. On top of this haphazard way of using 3G spectrum, the Government later banned intra circle roaming for 3G, making operators’ life even more difficult. Right now, the 3G spectrum map is riddled with holes, making smooth data transmission a challenge. Also, there is very little competition in the 3G market since there are only four players per circle.

If telcos get more 3G spectrum, tariffs will fall and data transmission will become smoother. Moreover, 3G in 2.1 Ghz band has the best opportunity for enabling affordable devices for mass adoption (it being mature and spectrum is globally harmonized), compared with other options (LTE in 700/1800/2300), which are relatively new, will take a long time to mature and are not globally harmonized.

So instead of 2G, this Government should look towards 3G for revenue generation.