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Ideally, experts said, the new policy for third-generation (3G) mobile systems would bring greater consumer choice, lower prices, better competition and major opportunities for telecom players. But with its hefty entry price and a few inconsistencies, this policy could well end up favoring the two state-owned telecom players, making competition cut-throat for others.
Touted as a bold new reform measure from India’s coalition government – recently liberated from the tethers of the Left by the withdrawal of the communist parties – the 3G policy was unveiled Friday by the telecom minister, A. Raja. It opens the country’s 3G telecom services to local as well as foreign players, and promises to take India’s mobile revolution to the next technological level.
3G is the third generation or the next level of mobile phone standards and technology, based on the International Telecommunication Union family of standards under the International Mobile Telecommunications program, IMT-2000. It supersedes 2G, currently the most widely-used standard that is meant mainly for voice, and precedes the still-under-development 4G.
Technically, the main difference between 3G and earlier generation networks is how quickly data can be sent and received. 3G networks allow data transmission at speeds 40 times faster than 2G, which means that with 3G network access and proper hardware, one can not only use the usual voice call and messaging services, but also video calls, live TV, Internet access and music and video downloads.
It is small wonder then that 3G has emerged as the fastest-growing mobile technology around the world today. It is already in operation in 40 countries, and in India too, it is considered to be a technology whose time has come.
Even as India has emerged as the fastest-growing mobile market in the world, and is expected to remain so for some time to come, falling call rates have resulted in ever-sliding average revenues per user for telecom companies, who say that the country needs a technological jump to flourish.
Besides, 3G promises to be a boon for rural India as well, since it paves the way for a plethora of social and economic development services like e-governance, tele-education, telemedicine and the like.
Still, it comes with a severe entry barrier.
For one, the policy sets just two slots for 3G players in New Delhi and Mumbai – the two largest and most lucrative megacities in the country for telecom services – and one has been reserved for the state-owned telecom player, Mahanagar Telephone Nigam Ltd.
In each of these cities, two 5-MHz blocks of spectrum will be auctioned, with a reserve price of US$38 million each. But since one has already been booked for MTNL, it is certain that the bid price for the other spectrum block will be sky-high.
“Most of the potential for 3G services lies in metro circles, and most so in these two cities,” said Sanjay Chawla, an analyst with JPMorgan. “Hence, it is almost certain that for these circles the ultimate bid price would shoot through the roof, and that’s a risk. The premium that operators in Delhi and Mumbai would have to pay over the bid price is a major roadblock.”
Spectrum is the range of electromagnetic waves over which mobile telephone services are carried and is key for offering advanced next-generation services. But since spectrum is a naturally scarce commodity, it is controlled everywhere, and almost always owned by the government of a country.
For other cities, the reserve price for each block of spectrum has been fixed at US$19 million and $7 million, depending on the market size of the city. However, depending on spectrum availability, the policy allows five to 10 operators in each of the other cities, out of which, again, one slot has been set aside for the state-owned telecom player, Bharat Sanchar Nigam Ltd.
But even if 3G spectrum comes cheaper in other cities, the policy imposes a heavy burden for new players in another form. Besides paying for the 3G spectrum, new players winning the 3G bids will have to pay an additional US$392 million for a mandatory universal access service license, which means that the new player will also have to roll out 2G along with 3G.
Then, there are potholes; new players have to roll out their services to cover 90 percent of the area in cities like Chennai, Bangalore, and Hyderabad in five years – and 50 percent in all other cities. If the roll-out obligation is not met after a grace period of another year, the spectrum allocation would be withdrawn. Details are still awaited for clarification on what happens to the money paid initially.
And for those who would want to roll out 3G across the country, the price is whopping, with the reserve set at almost half a billion dollars for a pan-India 3G license.
“Clearly 3G comes at a stiff price,” said Romal Shetty, executive director for telecom at professional services company KPMG. “That would translate into unaffordable 3G services for many users.”
Moreover, said Sunil Jain, a telecom analyst, “the decision to charge an additional entry fee from new players for UASL falls in the list of anti-competitive policies.”
However, perhaps the biggest hurdle is the decision to auction new spectrum without even having it in place. Although the minster says that India has “set aside 60 MHz of spectrum” for rolling out 3G services, the fact is that much of this – rumored to be 45 MHz – is still lying with the country’s army. The minister also says that “the army will release this spectrum soon,” but chances are that it is not going to be easy.
In fact, the army’s reluctance to vacate the “extra” spectrum under its control has been one of the main controversies stalling introduction of 3G over the past three years.
While the government insists that the army has more spectrum than required, the army steadfastly maintains that its hardware isn’t “spectrum efficient,” so it should be compensated “adequately” for surrendering the spectrum under its command.
Apart from this, the other major issue holding 3G back was the conflict between the strong but opposing lobbies of Global System for Mobile communications (GSM)-based and Code Division Multiple Access (CDMA)-based operators (GSM and CDMA are technologies for mobile services). The two have been battling, each blaming the other for “sitting on spare spectrum” acquired in the past from the government by misrepresenting requirements.
These two lobbies have been fighting with the government too, demanding a resolution of this issue first before ushering in any new players or services in the country.
Nevertheless, even if the minister is silent on how he plans to tackle these controversies before gong ahead with the 3G auction – expected to start in about six months – there are indeed a few upsides.
“This (policy) will help build Greenfield pan-India state-of-the-art communications infrastructure and services and bring in fresh investments to the tune of $8 to $10 billion over the next two to three years,” said Rajeev Chandrasekhar, president of the Federation of Indian Chambers of Commerce and Industry.
Besides opening up India – already the fastest-growing market and slated to grow even faster – further to global players, a major plus of this policy is that it also opens the door for global players in ancillary segments.
“The policy brings in 3G services in internationally harmonized (spectrum) bands, and will lead to economies of scale in equipment manufacturing, a competitive market for equipment procurement and increased spectrum efficiency,” said Alok Shende of Accendia Consulting.
