Go for global bids

It is now reasonably certain that the government will not have enough 3G spectrum to satisfy the initial needs of more than four or five mobile phone companies. This is a compelling reason for auctioning this scarce resource, as that is the only possible way to allocate it openly and transparently, without giving rise to allegations of favouritism and/or corruption. The alternative is to allocate on the basis of the number of subscribers that a telephone company already has, as has been suggested by some; but such a course would be fraught with problems. For one, it encourages firms to dress up their subscriber base""a number that is already a subject of dispute. Second, and more important, it discriminates against new players. Given that just a handful of the global mobile players are in the country now, and mostly in the form of passive equity owners, it is obvious that allowing them to bid for spectrum would get the government a healthy sum of money.

The alternative, of allocating this spectrum to only the existing players, would not keep out foreigners (if that is seen as an objective), for these latter will pay this premium to Indian firms""as Vodafone did when it bought a stake in Sunil Mittal's Bharti Airtel. Far better that the government get part of this money directly from firms whose current market capitalisation is well over $100 billion. Since the latest projections suggest that the Indian market could grow to 350 million subscribers by the end of the decade, it is obvious that Indian telecom's growth story will last. The global majors who are not in the country's mobile market include the likes of Cingular and Verizon of the US, NTT and KDD of Japan, China Mobile of China, and so on. Opening up the long-distance market, both domestic as well as international, has already seen two dozen new players apply for licences, and several more are in the pipeline""and it is certain that the same will happen if 3G spectrum is auctioned globally.

The other objection raised by some local players is that auctioning will drive up prices and this will translate into high consumer tariffs, or make the industry go bust""exactly the scenario that took place when telecom was opened up in 1994. This is always a risk, but if the auctioning is done properly, as in the case of the fourth cellular licence, the bids that come in should be reasonable and linked to real business prospects. For instance, the government specified that all the bid money would be collected up front. Another option would be to specify a cap on the prices of 3G services""say, 10 kb of downloads will not cost more than 50 paise. Once this price cap is fixed, even if astronomical bids come in, consumer interest will not be sacrificed. As for companies going belly up as a result of excessive bidding, it has to be kept in mind that in most such cases, the original shareholders of a company take a huge haircut as the company gets sold, but customers still continue to get serviced by the new buyer""BPL Telecom may have run into trouble, but its customers are still getting their service through Hutch Essar.