After an inexplicable avoidance of decision-making for almost 9 months, blaming intra-government disagreements over price for the delay, the Indian government has announced that it will auction 3G spectrum within the next 90 days. However, don’t hold your breath – because there’s always the possibility of some department putting a spanner in the works, despite this decision being made by empowered Group of Ministers (eGoM).

(Read: How Telecom Operators In India Should Approach 3G)

The base price for the 3G auction will be Rs. 3500 crores for pan-India (22 Circles) spectrum, up from Rs. 2020 crores last fiscal. As previously announced, 4 slots are being auctioned, and one slot is being reserved for government owned telecom operators (MTNL in Delhi and Mumbai, BSNL elsewhere). The individual price for Category A, B and C types of circles has not been disclosed yet. The Broadband Wireless Access (BWA) base price has been fixed at Rs. 1750 crores for a pan-India license. More on pricing and stakeholder comments at Mint.
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Types Of Bidders

We’d be surprised if the new crop of telecom operators – the likes of MTS, Tata Docomo, S-Tel, Datacom, Etisalat DB etc bid for 3G spectrum. Unitech Wireless (Telenor) had said last year that they weren’t keen on 3G spectrum in India. We believe that there will be the following types of telecom operators bidding for spectrum in India:

— The I-Need-More-Space Telcos: looking for relief in urban India where they’re like a Hummer in Chandni Chowk: plagued by spectrum crunch. For them, it is likely to be about easing the pressure on voice services with greater spectrum capacity, and also offering their high ARPU customers base premium services.

— The When-I-Grow-Up Telcos: mostly the new telcos, particularly those who haven’t raised money yet, and need a carrot to dangle before potential investors. Alternatively, these could also be telcos who are willing to take a punt on holding out for a couple of years, and then selling out. In any case, their focus – 3G or no 3G – appears to be one of bullying the bigger telcos on price.

— The I-Missed-The-Last-Handout Telcos: Some telecom operators might view this as an opportunity to enter the rather crowded Indian market, where a price war is just beginning to take shape. This auction could very well be viewed as a license handout, since those without a presence in the Indian market can also bid, and will have to buy a license later. This is the type of bidder that will end up raising the auction price beyond the other two.

(P.s.: if you think there are other ‘types of bidders’, do leave a comment, and we’ll update this list, giving due credit)

The Need For 3G: Mostly Old Telcos, Mostly Voice?

When it comes to telecom services, India attraction is its population: MTN has 100 million subscribers in over 22 countries, while Bharti Airtel has around the same in one. At last count (July 2009), India had 441.66 wireless connections, growing at around 10-14.5 million connections per month, with growth coming in largely from rural India. Please note that this auction is about spectrum, and 3G services in the form of EVDO data card services have been operational for a while. MTNL and BSNL, both government owned telcos, launched 3G services without much success.

We believe that there will primarily be interest in spectrum in Category A and B circles, which have greater teledensity, and hence a requirement among some operators of more spectrum for voice services. Rural teledensity is still very low, and it will be surprising if spectrum in C category circles gets sold at much higher than the base price, if at all. At the same time, a telco could adopt a buy-and-hold strategy for rural.

Related:

— How Telecom Operators In India Should Approach 3G
3G May Also Be About Data, Not Just Voice: BDA-FICCI Report