The Union cabinet has cleared the way for the auction, in February, of 5 MHz of spectrum (in each of 17 circles) in the 2,100 MHz band, which is used to provide 3G services. At the same time, spectrum in the 800, 900 and 1,800 MHz bands, used for 2G services, will also be auctioned. Reportedly, a much larger quantum of 3G spectrum — 15 MHz — will be up for offer by December. But by staggering the auction of 3G spectrum, the government seems to be creating artificial scarcity. Indeed, after the department of telecommunications clinched a long-awaited and much-needed spectrum swap with the defence ministry — the latter agreed to give up 15 MHz of 3G spectrum — it comes as a surprise that only 5MHz will be auctioned in February.
In fact, the Telecom Regulatory Authority of India (Trai) had earlier warned against holding an auction with insufficient spectrum. Fierce bidding can be expected in the 900 and 2,100 MHz bands. But, for a variety of reasons, including insufficient contiguous spectrum needed to launch data services, in most circles, demand for 800 and 1,800 MHz spectrum could be comparatively muted. Most of the 900 MHz spectrum on the block is due to the expiry of 20-year-old licences. So, if operators whose licences are about to expire want to stay in business, they would have to either win back their 900 MHz spectrum or replace it with 2,100 MHz. In such a situation, an auction with artificially created scarcity could seriously upset the financial health of telcos. Keeping this in mind, Trai had suggested that the 900 MHz licences could be temporarily extended by levying a pro-rata charge.
