April 8, 2010

Huge Response For 3G Auction

The biggest government auction ever started on Friday and it’s one that will change the lives of millions of people with mobile phones. The auction is for the high technology 3G systems. High-end applications and high speed internet on mobile phones will soon be a reality.

With participation of majors, like Bharti Airtel and Reliance Communications, the government saw 12 per cent higher bids at Rs 3,913.81 crore than the base price. There are nine mobile operators in the fray. For offering 3G services, the government is auctioning three slots in 17 telecom service areas and four in the remaining five areas.

The winners will be known in the next couple of days and third generation mobile services will be launched by September this year.

Starting at the base of Rs 3,500 crore, nine major participants raised the bids. According to information posted on DoT website, five rounds of auction were completed on day one.

Delhi circle, for which the reserve price is set at Rs 320 crore, generated the maximum interest from bidders with the winning prices at the end of round five being Rs 373.29 crore. Mumbai and Maharashtra were a close second at Rs 362.66 crore each. Nine circles saw negative demands. The quotes are provisional. Category A circles like Gujarat, AP, Karnataka, Tamil Nadu also saw aggressive bidding on par with top metros at Rs of Rs 362.66 crore each.

Despite being a metro, the bid for Kolkata was among the lowest at Rs 135.99 crore, followed by Kerala at Rs 134.65 crore and Punjab at Rs 121.20 crore. When contacted, government officials said the auction process may go on for 10-12 days looking at the response from the operators.

Asked whether there was any glitch in conducting the auction, they said the process was extremely smooth. According to Sanjay Bhandarkar, NM Rothschild (India) head, the bidding process would stop only when the highest bids have been detected for all the circles simultaneously. The auction for the Broadband Wireless Acces spectrum would be conducted two days after closing the 3G auction.

3G technology allows data download at extremely high speeds enabling users to view movies, news and even cricket on their mobile phones.

Government's big bet

There’s good news not just for the consumer but also for the government. The 3G auction may help rake in over Rs 40,000 crore, money that the government needs desperately for bridging the fiscal deficit.

A Raja, Telecom Minister, said, “After seeing the applications we are confident that it will be over Rs 40,000 crore.”

The 3G auction is to focus on transparency. The government is to fix price at each stage of auction. The price is to go up by 10 per cent, five per cent and one per cent depending on players left. The auction ends once bidders equal the number of slots. There is, however, no time limit or deadline for the closing of the auction.

The government has set base prices for all the 22 zones at Rs 3,500 crore and Rs 1,750 crore for BWA. Romal Shetty, head of telecom at KPMG India, said the 3G bidding will be intense because of fewer slots and probably it will be 1.5 to 1.8 times the reserve price.

This is the first mega electronic auction that has taken place in the country. Sitting in their offices, nine leading telecom operators on Friday put in bids worth $2-3 billion or even more in a specially designed online process.

The Auction Process

The auction is happening in a virtual world and is a software-based auction. A small team from the auctioneers and the Department of Telecommunications (DoT) will monitor the auction in a room in DoT.

The bidders will put in their bids online from secure locations in their offices. DoT will release the end-of-day figures for each of the 22 circles in terms of what has been the highest bid of the day and how many players are in race.

The auction will happen in one-hour cycles, with the government fixing the price at each round and the bidders pressing the yes or no button. The prices will go up in stages of 10 per cent, 5 per cent or 1 per cent, depending on the number of players left in the fray. But since this is a continuous and simultaneous auction for all 22 circles, players can jump between circles.

For example, in Delhi where 3 slots for 3G are available, suppose only four bidders are left in the fray. According to the DoT formula, the bid will now go up by 1 per cent till one player drops out.

Now, say, a player who had dropped out of the Delhi bid and had shifted to bidding for Mumbai finds the going tough there and decides to shift back to Delhi. The player will be allowed to do that and since the number of bidders has now again increased, the price increase for future bids will again become 5 per cent, up from the 1 per cent increase which was happening in earlier rounds.

So the auction will be on till all the 22 circles are bid for, as operators can in the middle of the bidding process jump from one circle to the other, provided they fulfill certain conditions.

So the percentage increase for a bid in all 22 circles will keep shifting between 1-10 per cent, depending on how many players join or leave the race which most bidders are allowed to do fluidly.

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