The government on Wednesday began allocating third-generation (3G) bandwidth to private mobile operators who won spectrum in bidding at unexpectedly high prices, after making certain necessary amendments to the licence terms. "We have started the allocation," a spokesman for the telecom ministry said.

The operators are authorised to use the spectrum for a period of 20 years from today, according to the amended licence conditions.

These also allow companies to offer 3G services till the validity of the spectrum even if their telecom licence expires before to that. The government has also imposed a roll-out obligation, under which the service providers would have to cover at least 90 per cent of the service areas in the metros within the next five years.

Bharti Airtel, Vodafone, Reliance Communication, Tata Teleservices, Idea Cellular, Aircel and S Tel were the operators who had bagged 3G spectrum in the auction in May that fetched the government over Rs51,000 crore, apart from about Rs16,000 crore from the two state-owned telecom companies Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd.

The two public sector undertakings (PSUs) were awarded spectrum more than a year ago in view of their obligation to procure equipment through the cumbersome process of inviting tenders.

BSNL offers services throughout the country, except Delhi and Mumbai where MTNL is the operator. However, their 3G services have seen poor uptake so far.

The operators have been awarded 5 Mhz of spectrum in each circle they won in the auction.

In the two metros of Delhi and Mumbai, three operators - Bharti Airtel, Vodafone and RCom - had emerged the winners as no operator could bag pan-India spectrum in the e-auction that was conducted between 9 April and 18 May this year.

According to the amendment, if the operators fail to achieve the roll-out obligations, they would be given extension for one more year after paying 2.5 per cent of the spectrum acquisition charge per quarter.

Also, in case of two companies merging, only one slot can be retained, according to the amended rules. The operators will have to pay the upward revised spectrum usage charges ranging between 3-8 per cent depending upon the quantum of spectrum held by them.

The government had promised to start allocating 3G spectrum on 1 September, but few had believed that it would actually meet the deadline.

For at least the first year as 3G is rolled out, the main focus is expected to be on improving call quality. India's 2G spectrum is congested and, as well as serving high-end users, the 3G spectrum will also allow operators to free up bandwidth for more voice users, who form the vast bulk of their subscribers.

Also, 3G uptake in India is expected to be slow in the initial stages, as 3G handsets are costlier than second-generation handsets.

The country is following in the footsteps of fellow emerging market giant China, which started offering 3G services last year. 3G allows mobile phone users to surf the internet, video conference and download music, video and other content at a much faster pace than the current second-generation services.

Analysts say India's rural areas offer huge market potential, but rolling out infrastructure to support 3G networks will be costly and the main, immediate battleground for 3G customers will be in urban areas.

For telecom firms the high bids reflect the importance of retaining an edge in the world's fastest growing mobile market, which has more than 636 million subscribers and has been adding up to 20 million customers a month. Companies are expected to form alliances so they can offer 3G service nationwide. ------(See: 3G spectrum allotment begins today)

Government wants more
The government again seems to have had its way with the 3G spectrum-winning telecom operators, who have agreed to pay higher charges for using the radio waves as part of the amended licence rules.

According to an Economic Times report, the operators, including Bharti Airtel, Vodafone and Idea, who have bagged 3G spectrum, will have to shell out more for using the radio waves, although a similar decision on 2G telephony has been stayed by telecom tribunal TDSAT.

The department of telecommunications (DoT) has said that the operators had bid in the auction for 3G spectrum knowing the terms and conditions like usage charge and that their refusal to accept the condition would make the entire auction process infructuous.

The DoT had, with effect from April this year, revised the spectrum usage charges to 3-8 per cent from 2-6 per cent of Adjusted Gross Revenue, depending on the quantum of spectrum. This was challenged by Bharti, Vodafone and Idea in TDSAT, which had stayed the implementation in its interim order.

DoT officials said the operators knew this condition before bidding for 3G spectrum in April-May. The move is likely to hit Bharti Airtel, Vodafone, RCom, Tata Teleservices, Idea Cellular, Aircel and S Tel, who had collectively paid a whopping Rs 51,000 crore to the government for 3G spectrum.

However, the operators such as Uninor, SSTL and others who have not bagged 3G spectrum can continue to pay spectrum usage charges at old rates.

On 25 February 2010, DoT had increased spectrum usage charge in all circles under which operators were asked to pay higher spectrum usage charges.