The Hindu Business Line : Scarce resource, auction mode, windfall for govt

Chennai, Aug 1 As far back as May 2005, Mr Ratan Tata, Chairman, Tata Sons Ltd, had suggested that the Government charge operators an entry fee with revenue share for third generation mobile (3G) services. This was around the time that the Government and telecom operators had initiated talks on the roll-out of 3G services.

Mr Tata had said that spectrum should be awarded to operators who promised the highest revenue share with the government in addition to Rs 1,500 crore entry-fee. Friday’s guidelines, which the government set out, allow for spectrum allocation to the highest bidder in an auction while the subsequent revenue share would be one per cent of adjusted annual gross revenues from the second year onwards.

Mr Tata had said, “Being a scarce national resource, spectrum should not be allocated free to any telecom operator. India should, like other countries, charge an appropriate licence fee for 3G spectrum," he said.

According to him, the objective of an entry fee was to provide a disincentive for hoarding or inefficient use of spectrum. He said a minimum of 5+5 MHz of 3G spectrum should be offered on a non-discriminatory basis to all existing unified access licensees (UASL) and cellular mobile service providers on an all-India basis.

COAI stand

Interestingly, the Cellular Operators’ Association of India (COAI), had not favoured this approach at the time. It cited the European experience with auctions in 2000 when over-optimistic operators paid huge amounts (close to a total of $ 100 billion) which delayed the launch of services and hence made it expensive for end users. It felt that an entry-fee would only push up prices for subscribers of these services.

The association had suggested that the Government could adopt the revenue-share formula, being followed for mobile services, for 3G services too.

Over time, rattled by the European experience with auctions, countries such as Malaysia and South Korea later decided to play safe, choosing ‘beauty contests’ as a method for allocating 3G spectrum. Licencees were selected based on a combination of technical and financial bids, and scrutinised and short-listed based on guidelines framed by the Government.

The downside to this method is that it does not generate significant financial resources for the government.

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Ratan Tata favours entry fee, revenue share for 3G spectrum
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