Anatomy of the 3G Auction

The auction is designed to be a simultaneous ascending auction, meaning all spectrum types – 3G GSM, 3G CDMA and BWA – are auctioned simultaneously. Entry into the game comes from buying “eligibility points”, which can only be bought per circle by paying an “earnest money deposit” which is a fraction of the circle’s reserve price. E.g., the reserve price for metros is Rs. 320 crore, the earnest deposit is Rs. 40 crore, giving the bidder 32 points with which to bid. A bidder who intends to compete across all 22 circles will need Rs. 505 crore (350 eligibility points). The corresponding numbers for CDMA 800 MHz and BWA auctions are Rs. 126.25 crore (350 points) and Rs. 252.5 crore (350 points).

The auction itself is a series of “clock rounds”. In each round, the bidders can bid for as many circles as desired. The initial price will be the reserve price set by the government. At the end of each round the system will rank the top bidders and determine the reserve price for the next round depending on the “excess demand”. This ensures that prices keep going up as long as there is interest from bidders. Those who don’t bid actively are penalised and their eligibility points will come down in subsequent rounds. This ensures that all serious players are kept active in the game. The auction ends for a circle when the number of bids is equal to or lesser than the number of slots available. The lowest common bid in the final round will become the common winning price to be paid by all winners.