An attempt at demystification of 3G Auctions

Coming across this 3G Auction daily public report got me kind of uneasy........One of the biggest events in Telecom  History.......that too once in a lifetime.....and here i am staring blankly at the report trying to make sense of it all...and failing miserably............(that too after man united was big time back in the title hunt!! violates theory of positivity you see....anyways that can be the subject another apology of a blog!!)......So here is what i figured of the 3G auction based on my limited understanding of the the documents which the google search threw up (comments/corrections are obviously welcome). The basic understanding is based on a quick read of the "Notice Inviting Applications for Auction of 3G and BWA Spectrum". A lot of it might be obvious facts for a lot of people but were not for me to be honest:

1. What is exactly being auctioned ?

Spectrums for 3G and BWA are on the line. 3G as common knowledge goes is the third generation of telephony services. BWA stands for Broadband Wireless Access Services which is necessary for rolling out Worldwide Interoperability for Microwave Access (commonly referred to as Wimax) that helpes handheld devices and laptops to access the Internet.

    2.   Are 3G spectrums being auctioned across the country?

Spectrums are being auctioned in blocks for each circle. The number of blocks for each circle is generally 3 blocks except in the cases of Punjab, West Bengal, Himachal Pradesh, Bihar and Jammu & Kashmir where the number of blocks up for auction are 4. In case of BWA, each circle or service area (as it is referred to in the invitation for bidding) has 2 blocks up for bidding. Not more than one block of 3G spectrum and one block of BWA spectrum shall be allocated to any single bidder in a service area.

     3.   What is the actual number of blocks being auctioned ?

The notice inviting applications for bid indicate that one block of 3G spectrum and BWA spectrum is reserved for the BSNL/MTNL in each service area. Accordingly, they would not be participating in the auction, but shall be required to match the Winning Price achieved in the respective service area in the 3G Auction as payment for the spectrum allotted to them. The frequencies of spectrum to be allotted to BSNL/MTNL have also been determined.

     4.   Can all entities bid for 3G Licenses?

Entities who either hold Unified Access Services Licenses or Cellular Mobile Telephone Services Licenses or entities who have experience in providing 3G services and have given an undertaking to obtain the UAS/CMTS licenses are eligible to bid.

     5.   When will the services actually begin?

The 3G and BWA services are to be rolled out within  5 years from the effective date (which is later of the date award of the spectrum or date of grant of the UAS license) with more emphasis on metros (90% coverage required while other areas require 50% coverage). One small detail - the right to use the spectrum is valid for 20 years.

    6.    Where are the auctions conducted?

The use of term auction brings to mind the movie scenes which are typically associated with auctions with the person in charge using the hammer to good effect. Well this one is over the web using an Electronic Auction System!!!

    7.    How are the winners determined?

The auction is a two stage process. A clock stage will estsablish the bidders to be awarded a block in each of the service areas (bidding will be for a generic block i.e. not linked to any specific frequency). The clock stage will consist of a number of rounds. The number of round will stop when the number of bidders at the price set in the previous clock stage is less than or equal to the number of blocks available for that particular service area. So prima facie it seems the auctions will stop when purchasers (without any competition) are identified for all the blocks. The second stage, more of a formality, is the Frequency Identification Stage which would involve identification of the specific frequency for the identified successful bidders.

Notwithstanding the limited understanding of English Language, it seems that at the beginning of each round a price known as Clock Round price shall be determined and it shall continue to be revised for the next round (if required) based on the excess demand for that service area. This process shall continue till the excess demand has been eliminated. The first clock round price shall be reserve price. The excess demand shall be the difference between the total number of bids which are at a price equal to the Clock Round Price set for the previous round and the number of blocks available.

The price increment based on excess demand is based on a formula which requires a 1% increase in the CRP if there is "0"/"1" excess demand (excess determined as per the formula discussed above), 5% increase for excess demand of "2" and a 10% increase for an excess demand of "3". There are absolute limits on price increase based on category of circle as well which range from  Rs. 7.50 crores to Rs. 40 crores (it is different for different categories of circles).

One more condition for the clock stage to end is Activity Requirement of 100%. Each block belonging to a specific category of service area has eligibility points associated with it. So for example blocks within a metro have 5 points associated with it, Category A and B has 4 points associated with it and Category C has 2 points associated with it. The initial eligibilty based on earnest money deposit made by the bidder is 11 (one block for each category) and activity requirement for the first round is 80%. In case bidder bids for circles more than 9 points, bidders eligibility shall continue to be 11. In case he bids for less than 80% of 11 say 4,  the eligibility for next round for that bidder shall be 5(4 divided by 80%). The Activity Requirement shall be increased from 80% to 100% in a two step process.


So at the end of it all the report which is available at the beginning of first paragraph, indicates that 40 clock rounds have passed till now and there is excess demand in some circles which would mean the prices are to increase further for such circles. The activity requirments at this stage does not seem to be available in public domain. However given that it has gone into 40 rounds, it should be getting to a stage where it is 100%.

Inputs to this attempt at demystification are welcome.