The Hindu Business Line : Increased competition for Indian players

BL Research Bureau “If you want to participate in a premium market opportunity, you have to pay up for it”. That seems to be the clear message that the new 3G policy, announced on Friday, sends out to domestic telecom players.

An enhanced base price for bidding, rationing of spectrum, and opening up of competition in 3G to global telecom companies, are some of the key features of this policy that may present a challenge to domestic telecom giants such as Bharti or Reliance Communications.

To offer 3G services on a pan-India basis, these players may now have to shell out a minimum of Rs 2,020 crore. The spectrum released has also been kept at a limited to 2x5 MHz per successful bidder for a service area. There will be 5-10 players competing for 3G spectrum.

Understood in its simplest terms, 3G services allow subscribers to have high quality voice transmission, enhanced data and video applications at faster speeds. This would allow operators to offer high-end value added services (such as movie downloads, mobile TV and high-end gaming), which could prop up the falling realisations (ARPUs) of mobile operators.

The auction for now (in the 2.1 GHz band) may flag off 3G services from GSM players (Bharti, Reliance-GSM, Vodafone and Idea), through technology such as high-speed packet access (HSPA) services. For EVDO (evolution data only) — the 3G standard for CDMA players — services, spectrum (in the 450 MHz and 800 MHz bands) would be auctioned when available.

In an earlier discussion paper, TRAI had indicated a timeframe of 6-9 months for this. At present, CDMA players may not have equipment to operate in the 2.1 GHz band.

Market potential

But for players to shell out such a hefty sum, how big, really, is the domestic market for 3G services? There are no concrete numbers on this. At present, Indian telecom companies generate only 7-10 per cent of their revenues from non-voice services and this, in turn, is dominated mainly by SMS!

The more popular value-added services such as ringtone downloads are already available on existing networks that operators offer. 2.5G, also offered by existing operators, in GPRS (general packet radio service)-enabled phones allow internet access.

For consumers, the key hurdle in adopting 3G services may lie in the initial costs of upgrading to a superior handset. The actual services may be available at a fairly competitive price, given that the policy proposes competition between 5-10 players in each circle.

foreign players

New foreign players, if they win these bids, could pose a potent challenge to Indian operators with their deep pockets and greater 3G execution expertise. In this scenario, Indian players may restrict themselves to bidding in select circles. Capex costs may also be high in the initial phase with roll-out obligations likely to be the same as that for 2G.

For mobile operators such as Bharti Airtel, Reliance Communications and Idea Cellular, who already fork out 10-11 per cent of their revenues as licence and spectrum fee, a pan-India win will mean a sizeable additional outflow.

However, should they decide to put in the bids, all three top listed players do have the cash coffers to fund this foray. The time-to-market may also be lower for these players, as also Vodafone, when compared to new operators, as they already have readymade passive infrastructure, on a pan-India basis.

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