Finally! Govt Fixes 3G Spectrum Reserve Prices At Rs 4,040 Crores! – A Look At The Great Indian 3G Saga

(With Inputs from Siddarth Raman)

It seems that the conflict between the finance and telecom ministry related to the fixing of reserve price for 3G auction has finally come to an end. The Government has decided to fix the reserve price for 3G auction at Rs.4040 crores. It’s a collective sigh that we all heave, with bursts of applause thrown in, as we commend (though a little skeptically) the DoT on finally getting its act together.

Here, at WATBlog, our attempt to keep you updated and forewarned about upcoming news in the mobile world has been frequently punctuated by news about the 3G category, most of which has been news about the delay in the auction process. 3G, for those who don’t know about 3G, it is the term given to third generation mobile technology. And for those who have not kept abreast of the latest happenings, allow us to fill you. The latest news, the headline of which is above,  marks the culmination of at least a YEAR of speculation regarding the 3G spectrum.

The Great Indian 3G Saga

Rumours about 3G coming to India and the future it held for the mobile industry were on the buzz since last July. With everyone excited over high-speed internet accessible over the once humble mobile “phone”, telecom providers were all up in arms in preparation to capture as much of the spectrum and the market share as possible. 3G, was obviously an inevitability, the question was when. Unfortunately, most of us, overestimated the efficiency of our Government. Announcements of Pune being the first 3G-enabled city were accompanied by news about the auction being delayed by around 3 weeks. The news, however, did little to dampen expectations, analysis and prediction. After all, delays are indications that the project has at least been initiated. Amidst reports of changes to the existent policy, of not allowing new entrants eager to enter the booming telecom market access to the spectrum to allowing foreign players to make a bid for the Indian spectrum, the Indian Telecom Ministry was possibly the most prolific and Mr A Raja, the most sought minister.

The recession and the economic downturn started sparking news of further delays and true enough, the auctions were put off again. What was most disconcerting was that the competitors and official distributors of the iPhone 3G, Vodafone and Airtel were left in the lurch by BSNL and MTNL. With strained mutters of restriction and inhibitions to a laissez faire system, private players were hopeful of an early launch, but were again dismayed when TRAI put off the auction citing administrative changes as the due cause. The affair seemed almost comical as this time as the auction was put off indefinitely. The reason, this time, was the price of the spectrum. The finance ministry was insistent on hiking up the slab of the spectrum to 4,040 cr as opposed to DoT’s estimate of 2020 cr. The prices rose by as much as 70%, however it seemed that the FinMin-DoT struggle was far from over.

Meanwhile, Govt. telcos BSNL were busy launching 3G as the private players watched mutely, in hopes of an early settlement. In March, BSNL had expanded to 11 cities with still no final date on the deadline of the auctions . What was extremely surprising was though they had an early start, the public players were not making waves as high as expected, even with MTNL attempting prepaid services. The one piece of good news though, the government stayed, thereby avoiding any chances of the new government undoing the plan of what seemed now an enterprise doomed to failure. However, Telecom Minister A Raja reassured the country that by 2009, 3G would definitely morph to a reality.

It was by mid-june that news started pouring in of a possible settlement between the two ministries. The 3G auction would definitely take place now, with only the final day and price to be decided. What was essential to the Government was the prospect of this auction lowering the fiscal deficit of the economy. A sale of around 4000 cr would be more than beneficial to reduced the country’s strained debt-ridded economy. This would explain the Government’s interest in raising the prices yet again. A final tentative date, an intentional oxymoron considering past experiences was set at. Of course, the price issue was left undecided, with the Government still uncertain about the price.

What is most surprising is that the news was out today, on the 19th of June, about the final slabs set by the Government, but a day ago, the ministry was still undecided about the course of action to take with speculations still ranging on HOW many operators the government could accomodate with numbers gravitating towards 11.

With the price finally confirmed at 4,040 cr, the Government is expected to earn at least Rs 32,320 crores from 3G auctions. There would also be a limit of six operators in first phase. The auction pricing would further see clarity in upcoming Budget on July 6. The Final reserve price for pan-India wimax license,wireless broadband services is also fixed at Rs 2020 crores doubled from telecom ministry’s earlier recommendations of 1010 crores – A big dampener for Internet penetration in India.

How expensive would 3G be for telecom players?

The fixing of the reserve price is just the beginning in the price discovery process of 3G licensing. The price of Rs.4040 crs is not the final price but just the base price at which the telecom players would start their bid from to get 3G license. We shall surely witness further hike in prices as Telcos put in their bids to outbid their competitors.

Telecom experts feels that the final bidding process may see the 3G licenses getting allotted at around $1-1.5 billion (around 4800 crores – 7050 crores). Add to that the added cost of Advertising, pre-Launch publicity and the Launch itself, 3G is bound to be a very expensive affair for telecom players. Also, forking out such huge amounts money in the initial phase will cause their capital expenditures and cash flows to go haywire. MTNL would be the biggest loser as it was given 3G license well in advance and may have to match highest bidding prices in Mumbai and Delhi circles. Arranging such large amounts at short notice coupled with the high gestation period of 3G technology could make it difficult for other telecom players participate in the initial auction.

How much time will it take for a pan-India 3G Rollout ?

A.Raja earlier promised that 3G auctions would indeed see light of the day in 2009 itself. The clearing of pricing issues will now set the ground for 3G auctions in few months. DoT had earlier conveyed that they would be ready to conduct auctions within 72 days of the price issue being resolved. The final outcome of 3G service may take further time as telecom companies may take at least one year to roll out pan-India 3G services.

Why has it been delayed in the first place?

The whole bone of contention for the 3G roll out in India was the pricing conflict between the telecom and finance ministry. The delay was also marred by the elections and controversy surrounding cheap auctioning of new telecom licenses. Also, the Government is obviously viewing the Telecom Sector as a potential cash cow. The scope for telecom in India is only poised to grow. The Governments attempt to set prices as high as possible emerge from their to reduce fiscal deficit. The fiscal deficit estimate for 2008-2009 has risen to 6.2% from the earlier expected 2.5% with the President’s inaugural speech including several social and welfare reforms to be initiated by the current Government. Revenues from the telecom sector have been astonishingly high in recent years, hence a possible attempt to generate earnings through the sale / disinvestmnet of spectra and other public assets led to a delay in the auction.

What does it mean for consumers?

Telecom subscribers would be finally getting 3G services after a long wait which would enable in-take of high speed internet, videos and numerous value-added services on mobile phones. The negative offset of the increased pricing, however means that it is the consumer who will possibly bear the brunts of the additional costs incurred by the providers.

The success of Blackberry, the recent buzz around the iPhone and other smart-phones, Mobile TV and other VAS services have already highlighted the huge market for other Value additions in the mobile arena.

The introduction of 3G by telecom biggies would also mean development in other sectors. High-speed internet and availability of updates-on-the-go will lead to the development of a good eco-system giving impetus not just to the entertainment industry, but also to trade, finance and commerce.

We’ve seen one year of delays, of promises, expectations, analysis and now finally, the speculation is at an end. What remains to be seen is the end-result and the hopes that 3G will hopefully usher in a promising era of development.

We hope to hear your views of the same? Would the increased price make it to expensive for the common man? On the other side, with around 11 players in the market, will intra-industry competition lead to better services and a reduction in prices? Will we finally be able to use the iPhone 3G or (s) with our existing connections? We shall wait.

3 Responses to “Finally! Govt Fixes 3G Spectrum Reserve Prices At Rs 4,040 Crores! – A Look At The Great Indian 3G Saga”

  1. June 20, 2009 at 1:01 pm #

    “3G, for those who don’t read WATBlog regularly, is the term given to third generation mobile technology.”

    What? Didn’t know that Watblog is the “ONLY” source of info when it comes to 3G!!

    • June 20, 2009 at 9:59 pm #

      Sorry for that arrogant sentence – We have corrected it :)

  2. June 21, 2009 at 2:17 am #

    @ devakishor
    although that sentence was not written by me…..I still feel it was not out of arrogance….that sentence truly implied someone who is not abreast with 3G developments on a regular scale….You would find similar sentences in many well established news site…so nothing new coined by us.

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