Uphill Task

$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.

According to DoT guidelines, the price of the 1.25 MHz block in the 800 MHz
band, which can be used by CDMA operators, will be finalized by the price of
auction of 3G spectrums in the 1800 MHz band. Given that the price of the 1.25
MHz block in the 800 MHz band will be one-fourth of the 1800 MHz band.

Interestingly, the guidelines also state that if there was one block
available in this segment, the spectrum would be given to the CDMA operator with
the highest subscriber base. Simply put-Reliance communications. Commenting on
this a telco spokesperson says, “The guidelines clearly reflect the undue
advantages offered in favor of some particular companies because of their
political connections.”

New Opportunities

In India 3G can play a key role in transforming the entire picture of
wireless broadband access, much like cellular services did to perk up the
overall tele-density in the country.

“3G will bring efficient voice and rich data services to Indian consumers. We
are commited to seeing 3G CDMA standards succeed in the market place,” says
Kanwalinder Singh, president, Qualcomm, India & South Asia.

Initially, metros will lend themselves as a target market followed by rural
markets.

The incumbent operator BSNL is quite upbeat on 3G services and is planning to
kick-start the same over the next six to nine months.It is seeking a total
investment of around Rs 3,000 crore for the purpose.

Commenting on the initiatives and future course of action on the 3G front,
Kuldeep Goyal, CMD, BSNL says, “3G services will bring a new breed of faster and
superior services at the consumers doorstep. At present, we are planning for
around 5 mn lines in a year's time, and are also looking at viable options of
entering into joint ventures with handset vendors for bringing low-cost
3G-enabled handsets for entry level consumers.” He further adds, “We have
already started importing 3G equipment and expect to roll out services within
six months of receiving the equipment.” Although the incumbent operator will
continue to focus on the rural front, 3G services will take some time to become
cost effective for rural customers.

Interestingly, many fingers have turned toward BSNL-the state-run incumbent
had already started 3G services in the country on a commercial basis, much
before the guidelines of 3G services were issued. Notably, the operator has been
providing 2.4 Mbps evolution data optimized or EVDO services in various
locations in the country for more than a year. According to various industry
experts, this is pure foul play and the incumbent is not following the
guidelines.

While DoT confirms that the said service falls under 3G services, Kuldeep
Goyal, CMD BSNL, simply rejected the claim saying: “The service comes under the
2.5 category and we are following all the guidelines.”

MTNL, another state-run incumbent is also geared up for bringing the 3G
services to consumers within the next five to six months. “We are ready with our
core network and will begin with 7.5 lakh lines. We will start our 3G services
initially in the Central Delhi region, followed by rest of the city and Mumbai,”
says AK Arora, executive directer, MTNL.

AG Rao, chief technology officer, Corporate, TTSL says, “We are presently
evaluating our 3G plans and once we get the spectrum, we will be in a position
to offer 3G services in six to eight months. The important aspect is the
adoption and affordability of the services. Each new service brings a lot of
innovation and technical expertise; we are looking at all possible aspects and
will surely bring the services in the best possible manner for consumers.”

TTSL, which pioneered the CDMA 1x technology platform in India, has already
established a robust 3G-ready telecom infrastructure. It has partnered with
Motorola, Ericsson, Lucent, and ECI Telecom for the deployment of the network.

While MTNL is primarily focusing on the GSM forefront to roll out 3G
services, Reliance and TTSL are looking to offer services at both GSM and CDMA
bands.

The Final Say

The launch of 3G services in India is going to create a big market
opportunity for all service providers and equipment vendors. Although, according
to experts, the actual implementation and commencement of 3G services could take
a much longer time.

“There are several challenges in the 3G roadmap. Network optimization and
stabillity to the price will be the key things. However, we do foresee the
Indian market operating 3G networks in eighteen months,” says Kiran Pande,
president, ECI Telecom.

“We are quite excited after the 3G announcement, while spectrum availability
continues to be one of the predominant factors that will drive penetration of
wireless technologies, services, and handset pricing, service mix and service
quality/reliability will determine the pace of service rollouts and uptake in
urban and rural areas,” says Neeraj Gulati, MD, Ciena India.

Leading equipment vendors such as Qualcomm, Nokia Siemens, Ericsson, etc, are
working with service providers to develop their market entry strategy,
positioning of 3G, product portfolio, and roll-out plans.

BV Raman, country head, CDG says, “We welcome DoT's spectrum guidelines for
3G services.” However, he also lamented about the non-availability of spectrum
in 450 MHz and 100 MHz bands. “We trust that this spectrum will soon be made
available for bidding to maintain a level playing field with GSM operators.”

Debasis Chatterji, director, Operations, NetXcell says, “While one can
wonderfully package voice and data in 3G, India with twenty-six official
languages is going to be a big challenge.” The company is presently working on
3G services such as mobile video gateways, etc, and is in talks with various
operators.

The immediate priority of Indian telecom service providers will be network
decongestion. “Being one of the fastest growing wireless telecom markets
globally, the focus of operators should be on improving voice services to
achieve heights in the 3G arena,” says Ganesh Guruswamy, country manager and
director, Freescale Semiconductor India.

“While incumbents will obtain a certain advantage because of expertise and
knowledge about domestic customers, the new entrants will bring new technology
and innovative services with them,” says Liam Maxwell, VP, Products, Oracle
Communications Global Business Unit.

There are many who think that proper evaluation and categorization is
required to fulfill the demands of a broadband hungry nation. While
prioritization of the customer segment would be one of the challenges for
operators, a cost-effective business model and introduction of innovative and
money-spinning services would also be crucial.

India requires a long-term telecom policy. And these policies should assist
operators to plan their investments and technology platforms for the next 4-5
years. The Indian government should gear up toward this. And all stakeholders in
the development of the telecom sector should have consensus and open mind.

Jatinder Singh

jatinders@cybermedia.co.in