The mystery over postponement of 3G Spectrum auction is over. The law ministry has cited “Saving (Government) revenue” as the main reason for not approving auction of spectrum if it is not available by September, 2010. It has pointed out that the government would be required to pay huge amount in terms of interest and infrastructure cost incurred by the successful bidders if the Spectrum could not be made available within stipulated period.

The law ministry wanted that only those blocks of Spectrum should be auctioned that are available for allotment to operators by September, 2010. The law ministry sent the file with its opinion directly to the finance ministry. It appears that the Defence ministry, which holds the Spectrum, is not in a position to release enough blocks of Spectrum by September.

Earlier, the empowered group of ministers (EGoM) proposed to auction 3 blocks of 2x5 MHz of Spectrum throughout India and 4 blocks in five service areas – J&K, Punjab, HP, Bihar and West Bengal.

If this is any indication, the 3G Spectrum auction is not likely to take place before September. This is certainly bad news for telecom vendors such as Ericsson, Huawei, NSN who were banking on 3G network demand from the Indian market as the wait gets further prolonged.

In its opinion the law ministry has noted: “Para 2.1 of notice inviting tender (NIA) states that though the Government intends to assign the right to commercially use the allotted spectrum by 1^st September 2010 and if for any reason government is not able to assign the said spectrum by 31^st December 2010, the successful bidder shall be refunded the entire amount deposited by it along with interest at the rate of (State Bank of India) SBI advance rate for the applicable period, quarterly compounded from 2^nd September 2010.”

“It may be seen that the amount to be deposited by the successful bidder (S) may be huge as the reserve price for one block of 3G Spectrum  pan-India is Rs 3,500 crore . In such a situation we may suggest that the rate of interest on refunding the bid amount may be from the money deposited by the successful bidder. Another aspect of the successful bidder may also be that he might invest amount for raising infrastructure for rolling out these services and he may seek recouping for the compensation under this head.”

“Therefore, to save the government revenue we may advise DoT to go for auction for these slots only where they are able to allot the spectrum for commercial use by 1^st September 2010. DoT may accordingly revise the draft NIA,” says the Law Ministry note.