Aug 2, 2008

India - 3G

Indian consumers will have their tryst with 3G telecom services in the next six months, with the Department of Telecommunications (DoT) announcing that it is issuing state-owned Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) spectrum to roll out all-India services.

3G or third generation services offer consumers internet access at speeds that are at least 30 times faster than 2G.

The move will give the state-owned corporations a four-to five-month head-start in the 3G space over private sector rivals.

The government, which announced the broad guidelines of the 3G policy today, said details of the auctioning of spectrum — radio frequencies that enable wireless communications — and the number of players allowed in each circle will be finalised within four months.

The state-owned corporations, for which spectrum has already been reserved, will have to match the highest bid after the auction for private companies is completed.

Announcing the new 3G initiative, Communications Minister A Raja said: “We expect to earn Rs 30,000 to Rs 40,000 crore through this 3G auction.”

BSNL Chairman Kuldeep Goyal added: “We will roll out an all-India 3G network in six months starting from the north and east.” The company has placed orders for equipment and said 25 per cent of the 40 million-line GSM order is for 3G services.

Industry experts predict 45-70 million 3G customers by 2012, roughly 10 per cent of the mobile customer base. New players that win bids will, however, have to pay additional cash (Rs 1,650 crore for an all-India 3G licence) for mandatorily taking a universal access service licence (UASL) also.
(Key telecom announcements by the government on Friday)
Spectrum to be auctioned in blocks of 5 MHZ for 20 years
Number of licences to be auctioned would vary from five to ten in each circle
Licence holders and new players with 3G experience to be allowed
The reserve price for auctioning in Mumbai, Delhi and category A circles set at Rs 160 crore, for Kolkata and category B circles at Rs 80 crore and Category C circles at Rs 30 crore
One block of 5MHz reserved for BSNL and MTNL
A new player who wins a 3G bid also has to take a UASL licence
Roll-out obligation imposed; in metros have to cover 90% of the area in five years and 50% of cities in all other circles
Spectrum withdrawn if roll out obligation not met after giving a grace period of another one year (from 5 years)
Auction to be conducted by an independent expert agency

Two players to be licenced for number portability services
Number portability in metros to be launched in six months and across the country in a year

Reserve price will be 25% of the 3G service price
Licence to be given through e-auction
Licence holders as well as new players with experience in running internet service

The industry is divided on today’s announcement. "The government’s plans to allocate additional spectrum should ensure the fullest possible breadth of competition in 3G services," said T V Ramachandran, director general, Cellular Operators Association of India, which represents GSM mobile operators.

“This will surely push our valuations up since new players who win bids for 3G, will have to tie up with us for 2G,” said Mahendra Nahata, a shareholder in all-India licence-holder Datacom Solutions.

But new players interested in entering the country (AT&T, Sprint and some West Asian telcos) said the guidelines will make it unviable for them until they also get 2G spectrum simultaneously.

“You can’t sustain a business in which 10 players are fighting for only 70 million 3G customers. You need a mass consumer base of 2G subscribers to survive, so getting 2G spectrum with 3G is essential,” said a senior executive of a telco with plans to enter India.

Although new players have to pay more for a UASL, there is no guarantee that they will get the 4.4 MHz start-up 2G spectrum that comes bundled with the licence because such spectrum is in short supply.

Also, a new player would need $3 billion to $3.5 billion to roll out a 3G network from scratch. A 2G incumbent can roll out 3G operations for half the cost, giving it a huge competitive advantage.

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