3G auction winners will be allowed 2G entry

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New Delhi: Successful bidders for third generation (3G) spectrum will also be allotted 2G airwaves, says a key document prepared by the Telecom Ministry, conceding a major demand of foreign telecom operators looking to take part in the 3G auctions.

The Information Memorandum (IM) to be released for potential bidders in a couple of days, says that new entrants that successfully bid for 3G frequencies will also be eligible for 2G spectrum, used by the current crop of mobile service providers in the country, reports Economic Times. However the allocation of second generation airwaves will be 'subject to availability.'

Currently, only state-run telecom operators BSNL and MTNL offer 3G services in the country. Global telecom companies, not having a presence in India, have so far maintained that they would not enter the 3G race here unless they are allowed to offer full-fledged mobile services.

But this concession may not be enough to ensure the participation of foreign telecom operators. "We will require more information on the terms of the license and clarity on clauses such as subject to availability," an executive of an international telecom company said. There are over 300 applications for 2G which are pending, and foreign telecom companies do not stand a chance if they are asked to join the queue, he added. So far, 2G spectrum has been given to all existing telecom operators for free, based on certain pre-defined subscriber numbers that they had to meet.

The document also says DoT has asked the finance ministry to extend tax soaps to successful 3G bidders. Permission has also been sought to allow telecom companies and internet service providers to raise funds for WiMax auctions through the external commercial borrowings (ECB) route. Earlier this year, the Reserve Bank of India (RBI) had allowed telecom companies to raise up to $500 million through ECBs for 3G auctions.

Last month, a ministerial panel had broken the deadlock over the reserve price for 3G spectrum, fixing it at 3,500 crore. The minimum bid amount for WiMax (mobile broadband) was set at 1,750 crore. The government had clarified in its 3G policy that international telecom operators, which do not have operations in India, can participate in the upcoming 3G auctions, while adding that successful players would have to acquire a telecom license (also called unified access service license or UASL) before they can begin operations.

A UASL in India comes bundled with 4.4 MHz of start-up 2G spectrum. DoT has so far, failed to clarify if international operators that win 3G spectrum will be given this 2G startup spectrum when they obtain the UASL. As per the country's 3G policy, successful bidders will get five MHz of third generation airwaves. While this may not be enough for a new player entering the telecom market as it will require additional start-up spectrum, it will be enough for existing GSM players to migrate to 3G.

The DoT also has asked the Finance Ministry to treat the 3G operator's license fee as expenses over a 20-year period, the document says. This implies, telecom companies can deduct this amount in 20 equal annual installments from their profits and pay taxes only on the remaining sum, which will considerably reduce their tax outgo. They also have to deposit an earnest money of 505 crore to participate in the 3G auctions on a pan-India basis. The new entrants, who will provide only 3G services, must share 3 percent of their annual revenues with the government as spectrum usage fee while incumbent operators entering the 3G space will have to share an additional one percent of their revenue for using the airwaves.

Operators like Bharti Airtel, Vodafone Essar and Idea Cellular, which currently pay 2-6 percent of their annual revenues as spectrum user charge, depending on the amount of radio frequencies they hold and the area of operations, will have to share an additional one percent of their revenues, if they win 3G frequencies.

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