The Hindu Business Line : Pricing 3G spectrum

It is unfortunate that the ongoing debate over allocation and pricing of the air waves that will be used in third generation mobile (3G) services has not been satisfactorily resolved among the current set of mobile telephone service providers. It is clear that 3G is a distinct class of cellular service from the existing mobile services. The new service will be predominantly driven by bandwidth-rich, high-speed data services in contrast to the existing voice-dominated mobile services. The kind of handsets, equipment and technology required for 3G are also different.

Both from the perspective of service quality and the bandwidth needed, opening up air waves in a new ultra-high-frequency spectrum — the 2GHz band — for 3G will be a prudent course of action that will serve mobile service providers in both GSM and CDMA. Even though the CDMA operators have voiced concern about availability of the right equipment to operate services in this frequency, the latest Telecom Regulatory Authority of India Consultation Paper on 3G suggests that the equipment is already in use elsewhere in the world, specifically in Japan. The Paper also adds that discussions with handset developers indicate that dual band (the existing 800 MHz and new 2 GHz) CDMA handsets will not take more than six months to develop in the Indian market. The trickier issue will be of building a consensus on the entry fee for operators and settling on a formula to share revenue with the Government. Since the Defence establishment will have to be compensated for vacating the frequency spectrum that 3G services need, it may be prudent for TRAI to recommend that prospective operators pay for that through the entry fee. TRAI will have to ensure that this compensation is kept to the minimum, for the larger the sum the higher will be the tariffs for consumers.

Finally, instead of sticking to the current revenue share applicable to current mobile services, TRAI may be better off conducting new auctions for the 3G spectrum. This is needed to bring in newer service providers and to ensure an efficient use of this prized frequency spectrum — it would be a travesty if those allocated did not put it to full use. If the government, in consultation with national/international auction experts, can design a transparent auction (if necessary, with a floor and cap for revenue share), it would greatly benefit all the constituents in the industry. If necessary, the government may even consider accepting a lower revenue share in the first three years, with a staggered increase over the next five to ten. This will be an equitable offer as in the initial phase, 3G will be a risky proposition for service providers, considering the uncertain forecasts on the market penetration rate and average revenue per user. Ultimately, revenue share determined through competitive auctions would be better than beauty contests (based on technical and financial bids that are subject to undue influence).

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