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India’s 3G Policy: Backdoor Entry For More Telcos; What About Viability?

India announced their 3G policy (hopefully the final version) on Friday. Bloomberg reports that as many as 10 operators may be allowed to offer 3G. The auction process is expected to begin in two months, and complete by December. Initially, 3-5 operators will be allowed to sell 3G services, and 5 more may be allowed in each area. Operators are expected to start offering services in the first half of next year, adds IDG. The auction would raise up to $9.5 billion for the Indian government. Telecom minister Raja sees revenues of Rs. 300-400 billion.

Some highlights from the 3G Policy:

— Bidders need to have an UAS License, or eligible for one, with prior 3G experience
— Successful bidder gets a license for 20 years
If successful, but without UAS License, a separate license fee for UASL will have to be paid
— Spectrum allocation by auction of 5-10 blocks of 2×5 MHz in the 2.1 GHz band
— EVDO – auction for CDMA in 450 MHz and 800 MHz band, and 1900 MHz when it becomes available.
Reserved: 1 block each in Delhi and Mumbai for MTNL, other service areas. They’ll pay a price equal to the highest bid for that area
— Auction Reserve Price for Mumbai, Delhi and Category A at Rs. 160 crore, Kolkata and Category B at Rs. 80 crore, Category C at Rs. 30 Crore
— Bank Guarantee of 25 Percent of reserve price, for auction.
— In subsequent auctions, the reserve price shall be the highest bid from last auction.
Insufficient bids: Vacant blocks will be re-auctioned, if the number of bids is less than the number of blocks for a service area, everyone gets spectrum at the highest bid price
In case of a tie – existing service providers get preference; if a tie between existing service providers, the one with more subscribers gets preference
Spectrum Usage Charges: None for the first year, but 1 percent of Annual Gross Revenue thereafter
Rollout Obligations:

In case of failure to meet these guidelines, a maximum one year extension will be guaranteed with payment of 2.5 percent of auction bid, failing which spectrum will be withdrawn.

Download the 3G auction policy document here.

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Backdoor Entry To More Telcos- Unviable?
The Indian Governments final set of guidelines for the auction of spectrum for 3G services has allowed the entry of even more telecom operators in the Indian market. We’re now faced with the possibility of, in the metros, the pie being further spliced and lack of scale, a higher cost of rollout (pushed up by high auction prices with more telcos) – hence the possibility of high cost of services and even inviability. Remember – India is a market where operators work on scale, and a policy of market skimming is short-lived.

While I’m not against the entry of foreign players in the Indian telecom market, the move does beg the question – why didn’t they allow foreign players when 2G licenses were being sold? In fact, the licensing for telcos could have been completed last year, and this should have been more about spectrum allocation. Remember that 3G failed to take off in Europe initially – in Finland, operators had to sell subsidized 3G handsets because of a lack of demand.

Operators might use 3G for a back-door entry into voice services, while 3G is more about high speed data access than voice – up from the inconsistent, low single-digit kbps GPRS we currently get, to 384kbps (while moving) to 2mbps (while stationary).

Lower Cost of Rollout
Over the past couple of weeks, I’ve heard examples of how the initial telecom rollouts took place around 10 years ago – in some cases, by just giving a village head (sarpanch) a mere TV set. Rest assured that the new rollout will be much more expensive; but the cost of rollout is likely to be reduced by infrastructure sharing. At the same time, I wonder if the leverage provided by infrastructure sharing has actually allowed the government to raise the auction price.

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