DoT plans US model for 3G spectrum auction

The Department of Telecom (DoT) has decided to go for a “controlled ascending” auction rather than a direct auction for allocating 3G spectrum. This method was first developed for the US Federal Com-munications Commission’s (FCC) spectrum auctions in 1994 and has been used for all subsequent spectrum auctions by the FCC.

According to DoT, a straight auction may lead to a situation similar to that in the mid-1990s, when many players could not pay the astro-nomically high amounts they had bid. Even otherwise, the experience with straight telecom and broadcasting licence auctions — in Europe and in India — has not been fully satisfactory, says DoT in its note to the Telecom Commission.

According to sources, the 3G spectrum auction will be conducted individually for each of the 23 telecom circles in the country.

The DoT committee studying Trai’s recommendations had suggested that the base price for the auction of 3G spectrum be Rs 160 crore ($40 million) for Delhi, Mumbai and other Category A circles; Rs 80 crore ($20 million) for Chennai, Kolkata and Category B circles; and Rs 30 crore ($7.5 million) for Category C circles. The committee had also recommended that in the first phase, only two GSM players be granted spectrum in the 2.1 GHz space, and the third slot be re-served for state-owned BSNL/MTNL.

Here’s how the the ‘controlled ascending’ auction, which will be conducted online, will work: If only two operators are to be chosen for Delhi, all players will first place their bids. If more than two players place bids above the base price, the auction will continue after eliminating the lowest bidder and the second-lowest bid will be the base price for the next round. At the same time, the amount of the second-lowest bid and the highest bid will also be made public.

In the next round, bidders can increase their bids or keep them at their older value. The process will continue till two operators emerge as winners. Finally, all three players (including BSNL/MTNL) will pay the same spectrum charge as the highest bidder.

In 2001, Europe had witnessed a telecom crash after operators, in a desperate attempt to outbid each other, submitted high bids for 3G spectrum running up heavy debt. The winners cracked up soon after, as the high debts affected their credit ratings, leading to a scenario where they could not borrow to pay for the 3G equipment, nor did they have the resources to maintain and upgrade contracts within their existing 2G networks. Europe witnessed over 1,00,000 job cuts in the telecom sector within the first year of the 3G bids.

Meanwhile, DoT officials also said that they had got representations from CDMA operators to auction 2G spectrum, which is currently allocated freely (in phases) based on the subscriber base of operators. It has been a long-pending demand of CDMA players to charge for 2G spectrum, as the current policy awards GSM operators double the spectrum allocated to them, based on the criterion that CDMA was a more spectrum-efficient technology.