Rs 60,000 crore is the lost business opportunity if 3G spectrum is further delayed

The Indian
telecom industry has been sitting on the golden goose for years, despite demands
from telcos for the timely auction of 3G spectrum. The war over vacating the
spectrum between the defense and telecom ministers has already taken 3G to the
backseat.

Amid confusing statements from bureaucrats
in India, we saw our neighboring countries launching 3G services and reaping
benefits. 4G has been kicked off and many global operators are looking for
commercial launch in 2010-11.

The domestic industry is going to miss the
3G launch of private players in 2010, since the spectrum will be made available
in August 2010-following a doubtful spectrum auction on January 14, 2010. A well
planned strategy scripted by the empowered group of ministers (eGoM) will help
both the state-run companies-MTNL and BSNL-which have been struggling to beef up
subscriber base after their much touted 3G launch last year. The industry feels
the delay in spectrum auction will help some big operators too!.

Delayed Loss

Our ministers and red tapism have virtually killed a big opportunity. It's
about a loss of Rs 60,000 crore, This will be the damage to the Indian economy
by deferring the 3G spectrum allocation for a year. The experts have arrived at
this figure by putting down the direct transactions that would have happened,
had the spectrum gone under the hammer as scheduled. Is this reason not enough
why India cannot afford to further delay the auction and allocation of spectrum?
The delayed loss is so huge that we may not be able to recover without extra
tasks.

During the ongoing slowdown, Indian
operators could have negotiated for a better rate with foreign vendors for
rolling out services had the auction happened earlier. The UPA government could
have benefited by raking in money through spectrum and annual fee, generated
additional employment opportunities for the jobless, banks could have found a
golden chance and fund 3G, vendor benefits would have been huge, and for Indian
subscribers data and video would have become their friend next door. Remember,
additional Internet/broadband growth improves our GDP. We missed all.

VOICE&DATA sat with the industry's gurus
and did some basic calculation to gauge the delayed loss in currency and
opportunity. Let us look at the worksheet.

Kunal Bajaj, managing director, BDA
Connect, an advisory firm says a new technology definitely takes time to pick
up, but before that it has to be launched. He says, "Till early this year, the
government was expecting to earn Rs 40,000 crore from 3G auction. Had the
auction taken place in time and had the government put that money in an account,
it would have earned around 10% interest on it, which would have amounted to Rs
4,000 crore.

According to him, the rollout of services
would have generated additional revenue of approximately Rs 1,440 crore
(depending on the ARPU earned by operators) from 3G services for the government.

A joint report released by Ficci and BDA
Connect early this year estimated that 3G subscriber base will represent 12% of
the overall wireless subscriber base contributing $15.8 bn in service revenues
in 2013. 3G ARPU was projected to reach $18.3 bn by 2013, with revenues totaling
up to $12.8 bn in the same year. Data was expected to contribute 29% to 3G ARPU
from handset users. Though at present, MTNL and BSNL have not been able to see
significant contribution to their revenues from data, the industry feels private
players would have been smart 3G service sellers and would have made some money.

The government stands to lose 10%,
approximately Rs 144 crore as license fee from this revenue as the initial
deployment is expected to be in metros and category A circles. Apart from
license fee, the government is also losing 1% of AGR as spectrum charges. Mobile
revenue in FY 2008-09 was approximately Rs 95,000 crore, 1% of this amounts to
Rs 950 crore.

On the capex side, operators having won
the bid, would have spent a total of about $3 bn, which due to the delay in the
auction, has been pushed back. Greenfield operators are expected to spend more
money as compared to the established biggies who need to mainly upgrade their
network to accommodate next generation services.

3G is being looked up to as a technology
that would improve Internet penetration in the country and for every 10%
increase in broadband penetration there is 1.4% increase in GDP of the country,
so the loss to the GDP can be worked out accordingly, says Bajaj. However, if
operators are looking for using 3G spectrum for voice services in the first one
to two years, the impact on GDP may not be massive.

Going by BDA's report, the annual 3G
device sales were estimated to reach 81.3 mn in 2013, with replacement market
contributing to 52% of device sales in that year. The overall broadband
subscriber base (including wireline, 3G modem, and BWA) was projected to grow to
46.1 mn users by 2013, with an overall PC installed base of 75 mn. The total 3G
modem subscribers are expected to reach 22.4 mn by 2013, with sales of 13.6 mn
new modems. The launch of services this year would have seen subscribers
replacing or buying new devices, that is another area where India lost a big
chance.

Mahesh Uppal, director and regulatory
adviser, ComFirst India, estimates the opportunity loss to be going in several
billion dollars, though he does not want to quote a number. At present, the
government has kept its revenue expectations from the auction to a minimum. Most
of the potential bidders running 2G services are already grappling to patch up
for scarce spectrum to carry mobile phone calls. Operators have been desperately
eyeing the additional frequencies that will come with a 3G license. There is a
possibility that the bidders would have to pay a price much higher than the base
price, which they are likely to do even now when the auction takes place. It is
not the spectrum fee alone, there are other components as well that would have
contributed to a big booty to the government which the government could not bag
this year.

"I think more relevant is the lost
opportunity in data market on which we should be emphasizing more," says Uppal.

Jaideep Ghosh, director, KPMG says that
even though he did not anticipate a revolutionary growth of 3G services in the
first few years of 3G rollout, the auction process should have taken place, and
a beginning could have been made.

"It is a very practical thing to say that
3G would not have seen great milestones immediately after the rollout. It is a
technology that will take its own course for adoption, he says."

His estimates tell that one of the
stakeholders who could have benefited largely would be the vendors and equipment
suppliers who have missed approximately Rs 1 bn per operator.

There are other players like the content
companies who were betting media-rich 3G offerings to improve their revenues.

The government and businesses in India had
a huge chance to make money from 3G this year, which the country let slip out of
its hands. In contrast, China, India's biggest contender in the telecom space,
awarded three 3G licenses early in the year and by the year-end, the nationwide
number of 3G users has amounted to more than 10 mn.

According to the Ministry of Industry and
Information Technology, which regulates the telecommunications industry in
China, the investment in third generation mobile technology reached 143.5 bn
yuan ($21 bn) this year.

3G spending in China has been led by three
major wireless carriers: China Mobile, China Unicom, and China Telecom. Its top
two equipment suppliers, Huawei Technologies and ZTE, have been the biggest
beneficiaries of the spending spree, with foreign names like Ericsson and
Alcatel-Lucent also receiving some contracts.

Knowing the magnitude of the loss, the
Indian government and the telecom industry would not like to let the new ray of
hope waiting and let it pass next year. The government has a huge fiscal deficit
to make up for, and the industry has much more at stake. Thus, in spite of newer
disputes between the ministry of defense and telecommunications over the
ownership of frequency waves, the telecom minister sounds confident of holding
the auction in January 2010.

According to the minister, intervention by the eGoM has
ensured that the 3G spectrum auctions would be held on time, from January 14,
2009. The eGoM meeting held under the Finance Minister Pranab Mukherjee
concluded on an optimistic note, deciding that the auctions would be held for
four slots across the country. One slot has already been allotted to BSNL/MTNL.

The eGoM has reached a consensus on
vacation of spectrum and it would be allotted simultaneously to all the four
winners by August 2010.

The spectrum allocation can be done by
August 2010, only if bidding is initiated in January. The industry has begun
seeing some good indications for 3G auction in the new year. Even the Reserve
Bank of India has made it easy for telecom companies bidding for third
generation airwaves to borrow money from abroad. The central bank has notified
that telcos can use the funds raised through external commercial borrowings for
buying airwaves to launch 3G. Accessing the ECB route to raise money to
participate in 3G spectrum auction had been the long standing demand of telecom
companies.

Can the government meet the January 14,
2009 deadline? According to industry sources, the government would not be able
to do so. The DoT has not issued the notice inviting applications for auctioning
3G spectrum. This was to be issued on December 8, 2009 They feel that the
auction schedule cannot be met since there is already a delay.

The people who are responsible for the 3G
launch have already played with fire. We have learned many lessons ever since
British operators burnt their fingers after bidding for 3G licenses at
exorbitant prices and wrote off their huge losses. It is time for action. It
will be best in India's interest to grab the opportunity and step in to the next
generation of technology that has unlimited avenues in store.

Heena Jhingan

heenaj@cybermedia.co.in