The effect of 3G-spectrum auction on

Indian telecommunication sector

Submitted By
Abhinav Singh Kakran PGP01004

Abhishek Vaish PGP01005

Manish Verma PGP01023

Sumit Singh PGP01042

Vimal Saini PGP01047

 The effect of 3G-spectrum auction on Indian telecommunication sector................. 1
Introduction .............................................................................................................. 3
Technologies ............................................................................................................................................................... 3
3G................................................................................................................................................................................. 3
WiMAX....................................................................................................................................................................... 4
3G Licensing ................................................................................................................................................................ 4
Beauty Contest....................................................................................................................................................... 4
Auction ...................................................................................................................................................................... 5
Choice for Indian spectrum allocation ....................................................................................................... 5
Price Effect ................................................................................................................................................................... 6
Investment Effect...................................................................................................................................................... 6
3G Licensing throughout the world ................................................................................................................ 6
Indian Telecommunication sector ................................................................................................................... 8
Motivation to enter ............................................................................................................................................... 10
Infotainment ............................................................................................................................................................ 11
Winners Curse.......................................................................................................................................................122
Past experiences ..................................................................................................................................................122
Game Theory ..........................................................................................................................................................133
Are we ready? ........................................................................................................................................................133
Challenges........................................................................................................................................................... 144
Smartphones,anyone?..............................................................................................................................14
Alliance and Coverage………………………………………………………………………………………….15
European 3G Auction-A Comparison ……………………………………………………………..15
Here comes the bigspenders………………………………………………………………………….16
What Happens Now?.......................................................................................................................16
Double Trouble? ...............................................................................................................................17
Who Wins Who Loses?
…………………………………………………………………………………187

Figure 1: The Evolution of Telecommunication ...................................................................... 4

Figure 2: Call Charges........................................................................................................................ 10

Figure 3: Charges and Subscribers in India (sources www.cashcow.in) ................. 12

The effect of 3G-spectrum auction on Indian telecommunication sector 2

 Figure 4: 3G-auction of various countries ............................................................................... 13

Figure 5: Mobile Internet Users.................................................................................................... 14

Table 1: Licensing through auction ............................................................................................... 7

Table 2: Licensing through beauty contest ................................................................................ 8

Introduction

An initiative commenced in late 2008 finally took form in first quarter of 2010.
On 9th of April 2010 3G spectrum and BWA auction commenced. The auction was
conducted over 34 days and involved 183 rounds of bidding across several
service areas.

The unique feature of this bidding was that it was conducted online. So, everyday
each player can know what is the highest bidding amount and gave them enough
time to think and strategize. The information was available online and media
also make sure that the auction information reaches to common man. All the 71
blocks that were put up for auction across the 22 service areas in the country
were sold.

The auction generated Rs 67,719 Cr, with service area of Delhi (including NCR)
winning the highest bid of Rs 13,268 Cr. All the payments were made on 31st of
May 2010. The auction was predicted to generate revenue of Rs 20,000 Cr.

Technologies

3G

3G refer to third generation of mobile systems. Mobile cellular become

commercially available in early 1980’s. That is technically known as first
generation of mobile system. Those were analog systems and had only voice
transfer capability. First generation mobile system was never deployed in India.

By 1990’s digital equipments started to make their mark. Digital equipments

were cheap and of better quality. In early 1990’s there was a need for next
generation of mobile system. Hence second generation of mobile systems were
deployed. Second generation mobile system provided better voice transfer
capability, and had some support for text transfer in form of SMS.

The effect of 3G-spectrum auction on Indian telecommunication sector 3

 By the mid 1990’s it become apparent that communication of the future will be
in form of data and not voice. 2.5G tried to emulate the same, that is to transfer
text on voice channel, and hence the evolution of GPRS and EDGE technology. But
they basically used the same frequency that is used for voice transfer.

The need for faster speed, a global compatibility and multimedia service has led
to the development of 3G systems. For this International Mobile
Telecommunications-2000 (IMT-2000) was realized. The goal of IMT-2000 was
to set the standards of third generation of telecommunications. 3G has a
capability to transfer data up to 2Mbps.

Figure 1: The Evolution of Telecommunication

WiMAX

WiMAX (World Wide Interportablity for Microwave Access) is a protocol that

provides mobile Internet. WiMAX also has the capability to transfer voice data
over IP network. In WiMAX data can be transferred at a rate of 40Mbps.

3G Licensing

Around the world there are primarily two ways through which licensing is done
these are beauty contest and auctioning.

Beauty Contest

The effect of 3G-spectrum auction on Indian telecommunication sector 4

 In beauty contest, a set of requirements are published in public forum and all the
interested contestants are requested to showcase their capabilities and how
their candidature can be the best suited to the requirement. The successful
applicants are chosen on the basis of predetermined requirements. The criteria
are different from country to country, business plan and technical expertise.
Criteria that are often used are commitments to rapid roll-out and with high
levels of land and population coverage. Other aspects such as market
concentration and technological specifications are also taken into consideration.
Normally, in beauty contest the winning contestant pays a predetermined license
fee.

Auction

In this method of license allocation all the participants try to outbid other. There
is no criterion for suitability of the candidate and the infrastructure support the
candidate have. The participant who puts the maximum bid wins the auction.
Several form of auction exists, in one form each participant is called to a common
platform and whosoever puts highest bid wins on the spot. In other form
candidates are given enough time to strategize and put their bid. There are
generally two methods for auction

Sealed bids
In this form of auction each participants give their bids in a sealed envelope,
these days emails are also used for the same purpose, and the highest bidder
wins the auction. This form of auction promotes new entrants.

Open bids
The auction is held for a period of time. Any of the participants quote its price,
the rest of the participants respond to this by either quoting higher bid or by
exiting from the auction. In this form the bidders desperate for winning the
auction and having enough money to spend wins the auction. In this form of
auction generally the low level players lose out of the big players.

Choice for Indian spectrum allocation

Auction (open bids) was chosen for licensing in India. The major reasons for this
might be:

1. For hugely populated counties auctions generally generates more

revenues than beauty contests.
2. Auction gives equal opportunity to relatively new players.
3. In beauty contest there is a need to predict the cost of licensing while in
auction the price automatically sets at market clearing rate.

The effect of 3G-spectrum auction on Indian telecommunication sector 5

 Price Effect
This is a common fact that the service providers will pass any price above their
marginal cost of operation to the customers. So if licenses are overpriced then
it’s majorly the consumers who will be impacted.

Investment Effect
As firms pay large capital to pay the license fee. They might slow down the
deployment of 3G-technology, as they might feel constrained by the capital. This
is neither beneficial for the firms as their money is blocked nor for the
consumers as they are deprived of a better technology.

3G Licensing throughout the world

Through auction

Amount
Number of (USD
Economy Auction date winners million) Remarks

United The four incumbents were awarded

Kingdom Apr-00 5 35 411 licences plus a new entrant

Netherlands Jul-00 5 2515 All five incumbents won the licences

Germany Aug-00 6 46 323 Four incumbents won licences

Three of four incumbents won

Italy Oct-00 5 10 084 licences

All six bidders won licences,

Austria Nov-00 6 716 including the four incumbents

Switzerland Dec-00 4 121 Four bids for four licences

Four licences were awarded at

New auction and a fifth was set aside for
Zealand Jan-01 5 60 the Maori people

Five bidders won 52 regional

Canada Feb-01 5 931 licences

Three bids received for four licences

Belgium Mar-01 3 418 on offer

Two national and various regional

Australia Mar-01 6 578 licences were awarded to six bidders

Auction cancelled since there was

Singapore Apr-01 3 166 the same number of bids as licences
to be awarded. Each licence was

The effect of 3G-spectrum auction on Indian telecommunication sector 6

 awarded for the reserve price

Four licences had been on offer. The

three incumbents were awarded
Greece Jul-01 3 414 licences

Bidders had to pre-qualify. Only four

bidders for four licences. Amount
Hong Kong, equals bid plus minimum royalty
China Sep-01 4 671 payments for 15 years

Sealed bid where licence price

corresponded to the fourth highest
Denmark Oct-01 4 496 bid in the auction

Licence awarded to only bidder

Slovenia Nov-01 1 90 (three licences had been offered)

Czech Two incumbents won with the third

Republic Dec-01 2 203 not participating

Israel Dec-01 3 157 Won by the three incumbents

Taiwan, Only three of six incumbents won

China Feb-02 5 1397 licences

Two incumbents bid for three

Latvia Oct-02 2 19 licences

Table 1: Licensing through auction

Through beauty contest

Amount
Date licence Number of (USD
Country awarded licences million) Remarks

Administrative fee of EUR 1000 per

Finland Mar-99 4 – 25 kHz

Amount does not include yearly

Spain Mar-00 4 444 radio spectrum fees

Two W-CDMA and one CDMA2000

Japan Jun-00 3 – 1X

In addition, each licensee is

expected to pay USD 2.2 million per
Norway Dec-00 3 45 year as frequency usage charge

Portugal Dec-00 4 360 Not including annual spectrum fee

The effect of 3G-spectrum auction on Indian telecommunication sector 7

 Poland Dec-00 3 1839 Awarded to three incumbents

Spectrum use fee and 0.15 per cent

Sweden Dec-00 4 – of turnover

Bouygues Telecom was awarded a

3G licence, at a lower price, after
the two incumbents, France Telecom
France Jul-01 3 1042 and SFR

Annual spectrum usage fee of 0.2

per cent of turnover or a minimum
Luxembourg May-02 3 – of EUR 200 000

Two incumbents awarded licence

Ireland Jun-02 3 173 plus new entrant

Three licences had been awarded

Slovakia Jun-02 2 67 but one was later withdrawn

Additional maintenance fees based

on the number of transmitters set
Malaysia Jul-02 2 26 up in each licensee’s 3G network

Table 2: Licensing through beauty contest

Indian Telecommunication sector

DoT, in a first ever forecast of mobile penetration across India for the next six
years, has projected a billion mobile phones by 2014.

It is well established that India has had one of the most remarkable growths in
mobile phones since the sector was first opened to private investment in 1994.
From two operators in each circle in 1995 the country now has 12 to 13
operators. Of these, about six to seven are fully functional, offering the Indian
consumer unprecedented choice and low tariffs.

India has also been breaking all types of records on new subscriber additions in
the last two years by adding up to 8 to 10 million phones a month, sometimes
more. The latest report of the DoT put together by its committee shows that
India will reach the half a billion mobile mark by 2010 and within four years
reach 1 billion mobile subscribers.

The effect of 3G-spectrum auction on Indian telecommunication sector 8

 Figure 2: Service Providers share (Sources TRAI)

In 2014, India's population is expected to be 1.26 billion; with mobile

penetration of 1.01 billion the mobile teledensity would be 80% above. It would
mean 8 out of every 10 Indians would have access to a mobile device.

This probably reflects the world's largest new growth opportunity over the next
five years, surpassing China's potential. China is already at nearly 700 million
mobile a phone as compared to India’s 400 million. The fact that India will add
more than 600 million new subscribers must rate as the biggest subscriber adds
for any country in the world.

Figure 3: Telecom subscribers (Sources TRAI)

The effect of 3G-spectrum auction on Indian telecommunication sector 9

 It is apparent that no country can have 12-13 players per circle. India will also
have just 2-5 players competing in a particular circle. These players will survive
because of their superior network coverage, better customer support, more
value added services and better marketing strategies.

Motivation to enter

In the past two years there are a lot of new entrants in Indian telecommunication
market. The Indian telecom market is huge and is expected to grow at a rapid
pace for quite some time. For example there were three major players in Delhi
circle viz Airtel, Vodafone (previously Hutch and prior to that Essar), and Idea. In
the past two years we have seen entry of Reliance, Tata, MTS, and Aircel in GSM
sector.

Considering the mobile charges in India, although the mobile subscribers are
increasing in India it is quite apparent that mobile operators are not targeting
revenues from voice calls. As those subscribers are distributed among various
telecom players. India has one of the lowest Average Revenue Per User (ARPU)
in the world and that is constantly decreasing. The existing players and the new
entrants are innovating new services to increase their customer base.

Figure 4: Call Charges

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 Infotainment

Most of the players these days are targeting infotainment sector. Infotainment
includes:

1. Mobile music
2. Mobile videos and animation clips
3. Mobile gaming
4. Mobile contests/voting’s
5. Mobile email
6. Alerts – News and Sports

To build on this infotainment sector the mobile operators need larger

bandwidth and this larger bandwidth is virtually not feasible in the existing
technology.

As long as all the competitive players are deploying the same infotainment
then there is no problem, as consumers have no better choice. But as soon as
the competitor gets larger bandwidth it will try to expand its business by
improvising on this sector. For that every player would like to deploy the
same services as the competitor does, and this is one of the major reasons for
such a high prices of 3G-spectrum auction in India.

The competitive firms don’t really have to bother about the readiness of the
consumers. First mobile phone with 3G capabilities was launched in India in
late 2006 and most of the people who can afford prefer 3G capable mobile
phones. Also, MTNL (Mahanagar Sanchar Nigam Limited) and BSNL (Bharat
Sanchar Nigam Limited) two of the government owned telecommunication
companies got first hand on 3G spectrum even before the actual auction. The
consumers overwhelmingly responded to MTNL’s and BSNL’s 3G capable
networks. This even reinforced the firms idea to heavily invest in 3G
technology.

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 Figure 5: Charges and Subscribers in India (sources www.cashcow.in)

Winners Curse
Any player major or minor didn’t want to lose out of this 3G-auction battle. This
might give us insight to an important analysis of winners curse. Did the telecom
players really overpaid for 3G spectrum? It is likely that these players put all
their thought process to win 3G spectrum. They had enough time to strategize
their bids for each circles. On the contrary it is apparent that even the big players
like Bharti and Vodafone had to dig deep in their pockets to pay the government.
The real effect for this would be seen in future, may be 10 years down the line.
The effect of past 3G spectrum sales may be seen to analyze whether the winners
of the auction really overpaid or is it a pre-calculated and safe bet.

Past experiences
A decade ago most of the western European and US auctioned their 3G-spectrum.
One of the most notable auctions was that of United Kingdom. It generated a
whooping $107.2 million. But it turned out to be a bad decision taken by the
firms. They auction was far above the market clearing price and hence it took a
long time for the major players to recover the huge capital they put in.

The effect of 3G-spectrum auction on Indian telecommunication sector

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 Figure 6: 3G-auction of various countries

There should always be more licenses than the major players. Netherland did
this mistake in their license auction. Most of the major players partnered the
minor players like Deutsche Telecom partnered the weakest Ben; Docomo and
Hutchison partnered with KPN and NTN with Dutchtone. This lead to just six
bidders bidding for five licenses: five strong and one weak player. This ensured
that there is less competition and the major competition exists only between the
major players.

Game Theory
If all the players get the same resources then there wont be any problem. No
player has any bandwidth to alter the equilibrium. The government of India
knew this phenomenon, and hence helped them to raise revenues from a variety
of auction type situations. TRAI devised such a structure of auction so that the
Indian government can generate most revenue.
All the major players auctioned and tried to win 3G-spectrum. This has created
havoc; each player kept on raising the bar and become desperate to win the
spectrum. No player really wanted to lose the market by not having 3G-
capablities. Market equilibrium will again be achieved as most of the players now
have 3G-spectrum.

Are we ready?
Are we really ready for 3G-spectrum? Most of the Indians still use voice as their
primary way of transferring information. GPRS and EDGE have been big flops in
India. Only a handful of people of India know how to use mobile phone for data
transfer and even lower actually use it for data transfer.

The effect of 3G-spectrum auction on Indian telecommunication sector

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 Figure 7: Mobile Internet Users

Challenges

The major challenges faced are:

1. The mobile handset (equipment) that is capable of providing mobile

Internet is way too costly as compared to the ones that don’t have such
feature.
2. The Internet usage rates on mobile phone are still very high as compared
to voice transfer.
3. People are not ready to accept data transfer as a mean of data transfer.

Smartphones , Anyone?

It doesn’t help that very few cellular subscribers in India already possess 3G
phones. A recent report by Evalueserve says there are over 20 million Indians
using 3G-enabled handsets right now—that’s less than 3% of the current
subscriber universe of 605 million—and this number is likely to increase to 395
million by 2012. Handset manufacturers are already pulling out the stops to
promote 3G handsets, perhaps aware that expecting financial support from
service providers may be a little unrealistic in the present situation. Instead,
they’re offering a range of phones across all price points—from entry and mid-
level to high-end consumers. “We believe 3G in India will be driven by content
rather than voice,” says V Ramnath, Nokia Director, Operator Channels. Adds
Samsung India director, mobile and IT, Ranjit Yadav, “Our portfolio of 3G

The effect of 3G-spectrum auction on Indian telecommunication sector

14
 handsets contributed around 5% to our total sales volume. Once 3G services are
rolled out, we see this contribution doubling very soon.”

Alliances And Coverage

Another likely hurdle is the lack of a pan-India presence. No player bagged a pan-
India licence—at Rs 16,750 crore, it was beyond the pockets of everybody. This
means no single player can offer customers 3G services all over the country.
Roaming agreements—and consequently higher charges for consumers—seem
inevitable, therefore.

Of course, it’s much too soon for the seven players to sign up partners—the
government will release 3G spectrum only by September and services won’t
begin until the end of the year or early 2011. But a study of the allocated circles
throws up some interesting insights. Between them, Vodafone (nine circles) and
Aircel (13) cover all the 22 telecom areas on offer; Tata has six circles that RCom
doesn’t, while Idea has seven circles not on Vodafone’s list. Aircel’s 13 wins
include five that Bharti didn’t bag.

Not that a presence in all 22 circles is any guarantee of success in the 3G arena.
Between them, MTNL and BSNL cover the country. But despite their headstart in
offering 3G services, the two public sector companies have received only a tepid
response. While MTNL has 120,330 subscribers across Delhi and Mumbai, BSNL
has 1.25 million in 434 cities. Tariffs have been reduced twice already in the past
one year and BSNL Chairman and Managing Director Kuldeep Goyal accepts that
the initial growth of 3G connections was slow. “This is in line with the global
trend where the initial uptake has been rather slow but later on the growth picks
up,” he adds.

Whether that trend plays out across 3G services all over India in the near future
remains to be seen.

European 3G Auction : A Comparison

For most people tracking the telecom industry, the current scenario is
uncomfortably reminiscent of the 3G auctions in Europe, especially the UK and
Germany, in 2000-01. “Disaster” and “debacle” are commonly used to describe
the fallout of that exercise.

In April 2000, after seven weeks and 150 rounds of bidding, the British
government raised nearly $35 billion from just five licences. In Germany, the
state was richer by $67 billion after two weeks and 173 rounds. Within a year,
though, the telecom sector across Europe cut about 100,000 jobs, of which
roughly a third were in the UK. Telcos in Europe struggled financially for years,
hovering on the brink of bankruptcy.

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 Not many expect India to fare much better. “We have seen bankruptcies in other
countries. I believe operators would have bid smartly to ensure it does not hurt
them,” hopes Kunal Bajaj, Director at telecom consultancy Analysys Mason.
“Operators in India will definitely bleed post-3G. We will see some players falling
by the wayside in the next few years,” declares Romal Shetty, Telecom Director,
KPMG.

Adds Sandeep Ladda, Executive Director, PricewaterhouseCoopers, “Bids have

gone way beyond expectations; it will be difficult for operators to recover their
costs. I think the business case is under challenge now.”

Here Come The Big Spenders

Are the bids really that excessive? It’s unfair to compare the collections this time
to what the 2G licence round in 2008 garnered: based on 2001 valuations, eight
operators paid up just Rs 1,651 crore. Instead, compare the 3G winning bids with
the base prices set by the government at the start of the auction (see table):
Vodafone Essar, Bharti Airtel and Reliance Communications (RCom) bagged
Delhi for Rs 3,316.83 crore and Mumbai for Rs 3,247.07 crore, more than 10
times the reserve price of Rs 320 crore for Delhi, Mumbai and circle A zones.
Bihar, which falls in the lowest ‘C’ category was tagged at a minimum Rs 30
crore, but Bharti, RCom, Aircel and STel shelled out a staggering Rs 203.46 crore
for the licence to operate there. Oh, and did we mention that the entire amount
has to be paid within 10 days of winning the bid?

Even the companies involved admit that the 3G auction prices were
unwarranted. “This is extortion. The government has sucked out Rs 68,000 crore
from the telecom sector at a time when providing connectivity is of utmost
importance,” declares the head of a mobile services provider. Bharti Airtel issued
a statement that the “auction format and severe spectrum shortage, along with
ensuing policy uncertainty drove the prices beyond reasonable levels”, which is
why the company could not achieve its objective of a pan-India 3G footprint.

Vodafone Essar’s Director of Strategy Samaresh Parida seconds the spectrum

shortage charge. “If the price was determined by market supply and demand, it
would have been a fair determination. But if the supply has been artificially
constrained by releasing just three slots, it is not fair pricing,” he says.

In fact, there is a strong sense of the speculative bubble about the 3G licence fees.
Scarcity and uncertainty combined to drive bids through the stratosphere: not
only is spectrum a limited resource, in the past two years, there has been no
allocation at all. Even now, the government has released only 20 MHz in each
circle with no indication of when the next round will be, or at what price. Three
slots of 5MHz each were auctioned in 17 circles and four slots each in another
five circles. Which means only three operators can offer 3G services in most
circles, with BSNL and MTNL being the other players. “This is what happens
when you try to sell a scarce commodity. There is always a fear of overpayment,”
points out former Trai chairman Pradip Baijal.

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 But for the operators, the value of 3G spectrum is two-fold. Not only can it
bolster their overburdened bread-and-butter 2G services, it is also a potential
game-changer (value-added data services can be the differentiator in a market
condemned to sameness).

There’s also a high opportunity cost attached to forgoing the 3G licence.

Typically, the early adopters of new technology are also the high spenders; 3G is
expected to be no different, with the top 10% of customers bringing in an
average revenue per user (ARPU) that will be three or four times that of the rest.
Unfortunately, these customers are also notoriously fickle: if the incumbent
service provider doesn’t offer them something new that a competitor does, they
won’t hesitate to switch. “The best way to realise the value of spectrum is to
design smart, go-to-market strategies that allow users to adopt 3G services faster
than they would have otherwise,” says Aircel Chief Operating Officer Gurdeep
Singh.

What Happens Now?

Telcos in India won’t find the numbers ringing right for a while yet. They may
have forked out close to Rs 68,000 crore in the first 10 days after the auction, but
it won’t be long before they realise—if they haven’t done so already—that
they’ve barely scratched the surface when it comes to 3G costs. Before they can
roll out 3G services by the end of the year as planned, they will need to spend
astronomical sums of money on getting their networks 3G-ready, creating or
buying applications and content, and in creating a buzz around the new
technology. “Significant investments in 3G spectrum and infrastructure, high
marketing costs (including handset subsidies) and sluggish subscriber growth in
the early years of launch of 3G services are expected to keep the return
indicators low for telecom operators in the initial years,” says a December 2009
report by Icra on the implications of 3G telephony on Indian operators. Reuben
Chaudhury, the Asia Pacific head of the telecom and technology practice at AT
Kearney, estimates that deploying 3G on a pan-India basis will require an
additional investment of $5 billion (Rs 22,500 crore) over five years.

It doesn’t help that the telecom sector is still reeling from a savage tariff war
that began last year. Tariffs for voice calls are down to absurdly low levels—one
paisa for four seconds, anyone?—And, not surprisingly, that’s taken a toll on
ARPUs and profit margins. ARPUs for India’s 605 million subscribers have
plummeted. On average, each of market leader Airtel’s 130.6 million users brings
in just Rs 220 a month, compared to Rs 440 five years ago, while the figures for
Vodafone are Rs 197 now against Rs 469 five years ago (when it was Hutch).

Meanwhile, according to some estimates, the EBITDA margins of mobile

companies have dropped over 60% in 2009-10 compared to the previous year.
Bharti Airtel posted an 8% drop in net profit during the January-April 2010
quarter compared to the same time last year, while RCom’s net profit drop for

The effect of 3G-spectrum auction on Indian telecommunication sector

17
 the same period was 16%. Vodafone Essar’s British parent, too, has just written
off Rs 15,157 crore from its value.

Double Trouble

The implications are obvious. Huge payouts and insufficient income mean that
the payback period for operators will increase. If the bids had been at a more
rational level, a large part of the investments could have been recovered in about
three years. Now, a five to seven year payback window appears more likely.

Ideally, in a price-sensitive market like India, a new service should be introduced

at rock-bottom prices. Given the financial compulsions mobile firms are likely to
face, that option won’t fly. Instead, 3G services are quite likely to command near-
premium prices as companies scramble to get their books back in shape.

That’s a double whammy price-sensitive Indian consumers won’t accept easily.

The entry costs of 3G may be too expensive for a large group of consumers: not
only will they have to bear higher charges, in many cases they will also need to
invest in new equipment—3G-enabled handsets. Again, it now seems unlikely
that mobile operators will subsidise smartphones through bundled offers, a
move many analysts believed was indispensable to hurry up the adoption of 3G
services.

Telecom analysts estimate that for 3G to succeed in India, the share of data
services in total revenue needs to increase significantly—from the present 6-7%
to a figure closer to the 25-30% share found in developed markets. If mobile
firms aren’t able to bring their prices and offerings more in line with what
customers expect, data ARPUs may continue to inch along the single digits.

Who Wins Who Loses

Government: One of the clear winners of 3G-spectrum auction is government of

India. Indian GDP for the year 2009-10 was 61,64,178 while that is expected to
grow at about 69,34,700. This auction has provided a much-needed liquidity that
was required post recession to maintain the GDP growth.

Customers: Consumers win on one front and lose on another. The consumers of
India will enjoy the advantages of 3G-spectrum. This will also delight the
customers of other countries, as there was very limited support to make a video
call in India. The consumers should also be delighted by the fact that the
spectrum in the major circles is won by some of the biggest players of India. So
they are expected to provide equivalent service as they were providing with 2G-
network. This may also lead to monopoly market where a few firms control the
market. But in the past TRAI has make sure that there should be easy entry in
this market and hence monopoly can be dissolved anytime.

The customers will lose because the spectrum is sold at a very high price and still
most of the Indians don’t really use data as their primary means of
communication. So it’s quite possible that a lot of people will not use 3G-
The effect of 3G-spectrum auction on Indian telecommunication sector
18
 technology. Also the equipment required for 3G is far costly than the similar one
without 3G-capability. The price offered by BSNL and MTNL for 3G-network was
very low. In fact BSNL was offering video call rate of 50-paisa per minute that is
equivalent to voice call in India and which is of course the lowest prices offered
in the world. The strategy of BSNL and MTNL was to acquire as much consumers
as possible before actually the auction happens. But now as BSNL and MTNL will
have to pay Rs 10,187 Cr and Rs 6564 Cr respectively, 50-paisa per minute call
wont be feasible option for them as well.

BWA (WiMAX) spectrum auction also happened just after 3G-spectrum auction.
As stated earlier that WiMAX can provide better data transfer speeds as
compared to 3G. Most of the big players in India like Vodafone, Idea, and Reliance
didn’t participated in BWA auction. The only major player in BWA auction was
Bharti Airtel. Now as we know that WiMAX has all the capabilities to be the
successor of 3G technology before 4G-technology really hits the ground. But not
having major players in WiMAX field might impact the customer satisfaction that
they could have got with major players. Although the positive point to be
mentioned here is that BWA spectrum is sold at market clearing price and hence
it is not as overpriced as 3G-spectrum price.

Service Providers: Only time can tell whether service providers really win or
lose. Around 8years ago 3G-spectrum was auctioned in most parts of Western
Europe. The carriers overpaid for the spectrum and then they spent years of
scrabbling for the return of their huge investment.3G auctions in India created a
lot of buzz globally followed by a phase of silent calm. But this silence is the
precursor to the storm which can be expected with the launch of 3G services in
India shortly!

The effect of 3G-spectrum auction on Indian telecommunication sector

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 Annexure 1:

TRAI’s Recommendations on Permitting New Entity for Allocation of 3G-

Spectrum

TRAI’s
Recommendations

Can also be downloaded from:-

http://www.trai.gov.in/WriteReadData/trai/upload/Recommendations/104/re
com10dec08.pdf

Annexure 2:
Auction queries and responses by GOI

3G & BWA
Auctions_Queries and responses

Can also be downloaded from:-

http://www.dot.gov.in/as/Auction%20of%20Spectrum%20for3G%20&%20BW
A/3G%20&%20BWA%20Auctions_Queries%20and%20responses.pdf

The effect of 3G-spectrum auction on Indian telecommunication sector

20
 References:

Cramton, P. (2001). Lessons learned from the UK 3G Spectrum Auction.

http://www.trai.gov.in/
Department of Telecommunications (2000), Guidelines for Issue of Licence for
Cellular Mobile Telephone Service
Jain, R. (1999a). Changing role of regulation: Lessons from US spectrum auctions.

The effect of 3G-spectrum auction on Indian telecommunication sector

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