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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

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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.

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2. Spectrum will be priced efficiently.

3. 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)

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Expected revenue yield Rs18,000 crore for 6 blocks.

III. WIMAX

i. Issues and options same as for 2G

ii. Only the number of existing players will be about 16 as

WIMAX auction is open to ISPs also.