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DoT to Open India's 3G Auction to New Players, Foreign Telcos
24 Mar 08
In its proposed guidelines for the auction and allotment of spectrum for 3G services, India's Department of Telecommunications has reiterated its intention to open the auction of 3G spectrum to both existing telecoms service licensees and new players, including foreign telcos, in a move that could further intensify competition in the market.
Global Insight Perspective | | Significance | The DoT intends to allow new players to participate in the auction for 3G spectrum. | Implications | The DoT's decision will increase competition for existing operators, as new players may enter the voice and SMS markets through the 3G route. | Outlook | Competition for 3G spectrum will be fierce. |
In its proposed guidelines for the auction and allotment of spectrum for 3G services issued late last week, India's Department of Telecommunications (DoT) said spectrum in the 2.1 GHz band for providing 3G mobile services would be allocated through a process of auction. The successful bidder would get a unified access service (UAS) licence for 3G services by paying the required entry fee and the operators would not be eligible for 2G spectrum on this licence, the proposed guidelines said. All the existing UAS licence-holders and cellular mobile and basic service licensees can bid for 3G spectrum along with new players, including foreign telcos. Auction participants can make bids for spectrum up to a maximum of two blocks of 5 MHz each in the 2.1 GHz band for various telecom service areas. Regarding mergers and acquisitions, the DoT is of the view that no merger would be allowed, if the number of operators in a service area comes down to fewer than four to ensure adequate competition. The DoT has also taken a step to safeguard the two incumbent telcos, BSNL and MTNL. The two would be allowed to take part in the auction and if they win one of the spectrum blocks as a result of their bids, they would get the spectrum based on their bidding prices. Otherwise, the spectrum would be given to them at a price equal to the highest bid. CDMA operators like Reliance Communication and Tata can each get two blocks of 1.25 MHz in the 800 MHz band on payment of 25% of the highest bid offered by GSM players for spectrum in the 2.1 GHz. The minimum entry fee is the highest for Chennai, at 2.33 billion rupees (US$57.7 million), followed by Karnataka at 2.06 billion rupees and Mumbai at 2.03 billion rupees, while the entry fee for Delhi is set at 1.71 billion rupees. The final guidelines are expected to be released by April and the action is being planned for the later part of the year. The DoT has also proposed stiff network roll-out obligations for 3G mobile service providers, failing which licensees would have to pay a hefty penalty for hoarding spectrum. "If operators do not achieve their roll-out obligations, they would be given one year within which to fulfil their roll-out obligations. Within this one year, the operators would be fined a spectrum cess of 2.5% of their winning auction per quarter," the DoT said in its proposed guidelines. "If operators do not complete their roll-out obligations even within the one year grace period, their spectrum assignment would be cancelled and the spectrum would be allocated via an auction to a new operator," the DoT said. Moreover, no entity related to the defaulting operator would be permitted to participate in the subsequent auction. Outlook and Implications The competition for the 3G spectrum will be fierce as both existing telecoms service licensees and companies that are looking to enter the market would desperately want to obtain the spectrum. Existing operators would want 3G spectrum to introduce advanced data services and pack in more subscribers in line with the market growth. Companies that have not acquired a licence for 2G mobile services, such as AT&T, could also use 3G spectrum as an opportunity to enter the traditional voice and SMS segment. The government's recent round of UAS licence allocation for 2G mobile services has allowed a number of new players into enter the market, such as Videocon-controlled Datacom and realty major Unitech (see India: 5 March 2008: DoT Issues More New Licences; Licensing Expected to Finish Tomorrow). Some of the new licensees may be interested in introducing strategic partners to raise capital to fund large-scale network roll-out as well as to borrow experience from leading foreign telcos—providing another route for foreign telcos to enter the market. With the market adding an average of more than 8 million mobile subscribers and a still-low mobile penetration rate of just above 20%, the Indian market continues to attract keen investment interest from both domestic conglomerates and leading foreign telcos. Following the acquisition of Hutchison Essar by Vodafone in 2007, the market late in 2007 also saw the entry of Russian conglomerate Sistema with its takeover of Shyam Telelink, which now has a pan-Indian service licence.
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