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Setting the Stage: DoT releases information memorandum for 2G spectrum auction

September 29, 2012
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The 2G spectrum auction slated for end-August 2012 has been postponed to November 2, 2012. The Supreme Court, heeding the government’s request for an extension of time to complete the sale process, has fixed the new deadline as January 11, 2013, failing which the court will initiate contempt proceedings against the government.

Following the cancellation of the 2G licences awarded in 2008, the spectrum obtained thereof will be sold for the first time through an open auction.

The Department of Telecommunications (DoT) has released the spectrum auction information memorandum (IM), which provides key details on pricing and auction rules. It also mentions the amount of spectrum available and the base price set for each of the 22 circles.

The pan-Indian reserve price has been set at Rs 140 billion for 5 MHz spectrum in the 1800 MHz band (used by GSM operators) and 1.3 times of the same for the 800 MHz band (used by CDMA operators).

For the 1800 MHz band, a minimum of eight blocks of 1.25 MHz (10 MHz) will be auctioned in all service areas. In addition, a provision of three blocks, each of 1.25 MHz spectrum (3.75 MHz), will be made, wherever available, for topping up the eight blocks of spectrum earmarked for auction. Therefore, 11 blocks of 1.25 MHz each will be available to meet the additional requirement of new entrants.

While the existing operators will bid for a maximum of two blocks of 1.25 MHz each in any service area, the new entrants can bid for a minimum of four blocks of 1.25 MHz each. The latter can also bid for an additional block of 1.25 MHz in each circle. This will provide the new operators access to 6.25 MHz spectrum, which is required to offer GSM services.

The block size for the 800 MHz band is fixed at 1.25 MHz (paired). A minimum of three blocks of 1.25 MHz each (3.75 MHz) will be auctioned in all circles. While existing operators can bid for one block of 1.25 MHz for a service area, new entrants will be required to bid for a minimum of two blocks of 1.25 MHz each for a circle. An additional block of 1.25 MHz spectrum will be made available for topping up the three auctioned blocks. This will provide the new entrants access to 3.75 MHz spectrum in each service area.

Delhi will have the highest reserve prices of Rs 6.93 billion and Rs 9 billion for GSM and CDMA spectrum respectively, followed by Mumbai at Rs 6.78 billion and Rs 8.81 billion respectively. The reserve price for Jammu & Kashmir is the lowest at Rs 63.3 million. Moreover, prospective bidders will have to deposit earnest money of Rs 4.43 billion to bid for spectrum in the 1800 MHz band across circles.

According to the IM, the notice inviting applications will be issued on September 28, 2012 and the last date for the submission of applications is October 19, 2012. DoT will announce the final list of bidders on November 6, which will be followed by mock auctions on November 7 and 8. The final e-auction of 1800 MHz spectrum will begin on November 12, while that for 800 MHz spectrum will be undertaken two days after the closing of the auction for 1800 MHz spectrum.

There will not be any technology restrictions for providing services. The successful bidder, however, will have to provide details of the technology deployed for offering services prior to the launch of commercial operations. The technology should be based on standards approved by the International Telecommunication Union, the Telecommunication Engineering Centre or any other international standards.

The IM is important for providing operators clarity on the sequence of events leading to the spectrum sale. However, operator participation in the upcoming 2G auction may be subdued. Companies like Telenor, Sistema and Videocon, which lost their licences in February 2012, as well as existing players such as Bharti Airtel, Vodafone India and Idea Cellular are expected to participate in the auction, but may limit their bidding to select circles.

Industry experts say that the game changer could be Reliance Industries Limited-owned Infotel Broadband, especially if the company bets big for pan-Indian airwaves.

Reflecting this market sentiment, leading global mobile operators did not participate in a recently concluded pre-bid conference organised to clarify issues related to the auction. Infotel Broadband, Bharti Airtel, Vodafone India, Idea Cellular, Tata Teleservices Limited, Uninor, Sistema Shyam TeleServices Limited, etc. were among the key participants.

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