Ministry of Finance Department of Economic Affairs Sub: Telecom Spectrum 2G & 3G 1. Discussed the attached note with FM Today.

2.

On the file relating to release of spectrum by the Air Force, I

have indicated the decisions of FM regarding 2G spectrum relating to: (i) raising the spectrum usage charges; and (ii) pricing. Those decisions may be indicated in our response to the DCN. We must also pursue this with Department of Telecom either in the meeting of the Telecom Commission or outside of that.

3.

On 3G, FMs view is that auction must be based on ICB.

The only stipulation we must impose is that the bidders must be pre-qualified on the basis of prior operational exposure to the telecom sector. If the bidder is a consortium of a foreign and a domestic party, it should be enough if either party has operational exposure to the sector.

4.

I have orally communicated the gist of this to Secretary,

Department of Telecom. FM said that he will also speak to Minister for Communications.

Sd/(D. Subbarao) Finance Secretary 7.4.2008 AS (EA) Sd/8.4.2008 JS (Infra) OR (in cc)

Encl: As above

Spectrum -2G, 3G & WIMAX Notes for Discussion

After discussing with FM, I spoke to Secretary, DOT. The following notes are for further discussion in order to crystallize DEA Position.

I.

2G (i) Spectrum usage charge: The scheme of increase proposed by DOT lower than what was agreed during consultations with MoF, Secretary, DOT says CDMA operators not agreeable to shifting from a usage charge linked to quantum of bandwidth (as is the current practice) to usage charged linked to

categorization reflecting scarcity value of spectrum (as proposed by us). Why should we fall in line? (ii) Pricing of spectrum: DOT is agreeable to pricing of spectrum beyond 4.4 MHz but wants this deferred till auction of 3G and WIMax is completed. In our note, we suggested pricing of all spectrum including spectrum already allocated. Is there a case for deferring this decision? Is there merit in disclosing the pricing intention right now even if actual

implementation is deferred?

II.

3G:
i.

Everyone is agreed that the only way forward is auction. The only issue is whether to restrict auction to existing players or to make it a global auction.

ii.

The advantages and disadvantages of either option are as follows: Arguments for open global auction
1.

Will

avert

categorization

rent-seeking

behaviour.

2. 3.

Spectrum will be priced efficiently. Wider participation will bring out convergence, technological innovation in voice and data services and improve the prospects of

investment in the sector.

4.

The methodology is legally robust and not open to question.

Arguments for restricting auction to existing UAS license holders (10 players)
1.

Existing players have invested in infrastructure and therefore have a claim for prioritization.

2.

They have systems in place and can deliver 3G services at lower incremental cost this will enable faster and more efficient roll out. May pass on lower cost to consumers.

3.

There are presently 4 to 7 operators per Circle. Sufficient critical mass exists to ensure competitive bidding, discourage catelization and offer services that are of acceptable quality and price.

4.

Bids

in

global

auction

may

go

too

high

jeopardizing viability and hence roll out. (UK experience of open auction in 2001 unhappy no full roll out yet).

(iv)

3G available spectrum is 30 MHz; 6 auction blocks of 5 MHz each 1 block reserved for BSNL at L-1 (highest bid) price. The rest will be sold as per auction. Reserve price Rs1,000 crore per block. Translates to Rs 6,000 crore for 6 blocks. Expected auction price Rs 3,000 crore per block (3 times reserve price)

Expected revenue yield Rs18,000 crore for 6 blocks.

III.

WIMAX
i. ii.

Issues and options same as for 2G Only the number of existing players will be about 16 as WIMAX auction is open to ISPs also.