$34 bn is a great deal of money to raise for selling radio frequency, but that is what the UK government mobilized in auctioning for five 3G licences way back in 2000. Eight years down, the Indian government has woken to the potential of the Indian telecom market and set an ambitious target of $10 bn from 3G auctions in the country. Hopefully, operators in India will not repeat the mistakes made by operators in the UK, which is currently going through a slew of 3G auction-related litigations that marred the second round of auctions.

Globally, the 3G technology has gained immense hype. However, except for Japan and Korea, 3G services have not been able to meet the expectations in other developed countries. Moreover, in developing countries, the subscriber ratio is negligible, and this is one of the reasons for delay in 3G rollouts.

Considering the heat generated following the announcement of the Indian 3G spectrum policy, consumers, especially those who have been customers of private operators, may need to wait for some more time to enjoy the 3G experience. The main reason for the delay has been non-availability of the necessary radio frequency spectrums, which need to be vacated from the defense forces and the Department of Space. Interestingly, both BSNL and MTNL, the two government-owned operators, received 3G spectrum and will enjoy the undue advantage of being the first to start services.

The government has set a target of around $10 bn from 3G auctions. Can the government achieve its target? Are operators bullish about the business? What are their plans considering the current market scenario?

In 2005, when the UK government tried to go for the second round of 3G auctions, Quotient Associates, the firm advising the government on 3G strategies, had warned that a new 3G license auction could raise only £2.5 bn, which is significantly lower than £22.5 bn mobilized in the 2000 auction. The planned auction is yet to take off in the UK due to litigations. Though India is not yet to face any litigation, delays have already marred the business.

On the delay in launching 3G in India as compared to the European market, Vish Iyer, VP, Service Provider, West, Cisco India & Saarc says, “The delay could actually help service providers to learn from both mistakes and successes from markets where 3G has been available for many years.”

But it is also noteworthy that in the past, we were not able to capitalize on the potential of various wireless technologies, and in India it is only price effectiveness which matters most to consumers. “The key lessons we can learn from the European experience is the significance of making string business cases with sensible consumption,” Iyer added.

The industry and consumer will loose if price of the spectrum auction is excessively high and could also make 3G a distant dream for the common masses.

“I feel it is too early to predict the actual number of 3G subscribers in India, but considering the issues, market demand, network needs, and other patterns, I think it will be only in 2010 when we would be able to reach some decent figure,” says P Balaji, VP, Ericsson India.

Side Effects
Although the announcement is appreciated and will certainly boost telecom infrastructure in the country, there are various aspects that need to be taken into account.

The bidding is open for all existing CDMA/GSM players where the minimum reserve price for each bidder will be Rs 2,020 crore for a pan- India license. However, the actual bidding could be much higher, and the government is expecting up to Rs 40,000 crore from the auctioning of the 3G spectrum. The spectrum shortage could delay the rollout of 3G services.

Further, the policy would permit up to ten players in a service area (except Delhi and Mumbai), including foreign players. Initially, the government is planning to auction five licenses of over 60 MHz of spectrum and may further offer five licenses at a later stage. Of these one block shall be allocated to MTNL in Delhi and Mumbai metro service areas, and BSNL in other areas.

The guidelines state that operators holding 2G licenses (irrespective of whether they have started services in the country or not) can bid for the spectrum. The new entrants, on the other hand, can only bid if they have expertise of 3G services and need to pay an extra sum of Rs 1,651 crore to obtain a unified license before they make themselves eligible for the bidding process.

Considering this, many global operators are quite apprehensive about their strategy, and this could actually act as a roadblock for prospective entrants into the Indian market. The global players that are keeping a close eye on all these developments include AT&T, Verizon, etc.

On the other hand, the state run incumbents, MTNL and BSNL have already been awarded the spectrum much before the actual bidding. Though the incumbent operators have to pay the highest bidding price (the price should be matched by the highest bidder at the auction), they would have a five to six months advantage over private operators who can only initiate their plans after the bidding process.

A private telecom spokesperson on the condition of anonymity says, “This sort of benefit always stays with incumbent operators. There is nothing new about it. There are operators who are experienced enough in the 3G space, but will not be able to rollout 3G services before a year's time because of the entire process. On the other hand some players are getting advantages without any vast experience in their portfolio.”

It is also surprising that in metros like Delhi and Mumbai, the government has made only three slots available for 3G services. And while incumbent operator MTNL would certainly use one slot, the remaining two though are available for private operators, they would have to pay hefty sums in the auction.

Service providers such as Bharti Airtel, who have experience in the 3G space, and global operator Vodafone who is already providing 3G services in many countries, need to wait till the very last moment of the entire bidding process to ascertain their role in the 3G space in India.

Furthermore, there is no assurance that Bharti or Vodafone will certainly win the spectrum bid (especially in Delhi and Mumbai). The interesting part is that while Airtel and Vodafone have already launched their 3G iPhone, they could be in an ignominious position if they failed to get the required spectrum.

The Blame Game
With the present turmoil and clashes of interest, the scheduled launch of 3G services could be affected and the government will not be able to meet the actual deadlines of the auction (which was earlier decided to be held within three months of issuance of 3G guidelines). The 3G services, which were scheduled to be launched by mid-2009, could face a further delay.

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