Will India finally see 3G spectrum auction in December?

The auction for 3G spectrum was to happen in December 2008, but a host of issues (such as lack of agreement between ministries over the reserve price for the spectrum, the forthcoming general elections, the global financial meltdown coupled with telecom operators' reluctance in making huge expenditure on 3G) led to the deferment of the auction.

Now, the Department of Telecommunications (DoT) has announced that auction for 3G spectrum will take place on Dec. 7. And two days after the close of this process, WiMax or broadband wireless licenses will be auctioned.

The declaration of this auction date comes after a ministerial panel almost doubled the reserve price for pan-India 3G spectrum to US$722 million (35 billion rupees), from US$414 million (20.2 billion rupees). India's independent telecom regulator had initially recommended a floor price of US$250 million for a 3G license.

The DoT hopes to net at least US$5 billion from the auction. The proceeds from the auction, it is learnt, will help close the government's large fiscal deficit, estimated at US$82.3 billion.

While it's true that India is one of the world's fastest growing telecommunications markets and the global telecom majors may still find Indian metros an attractive bet, the floor price sounds ambitious, especially in light of the global recession and fact that companies are still struggling to raise capital.

Besides, it's difficult to estimate the size of the Indian market for 3G mobile phone services. 3G will give users improved access to the Internet and allow them to download music, videos and other value-added services on their mobile phones. But, how many users will eventually want to go in for this service?

In early 2009, the government gave 3G airwaves to state-owned telecom operators--Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL). However, newspaper reports point out that the response to BSNL and MTNL's 3G services has been rather poor.

The growth in the Indian telecom market has been driven by falling call rates. Also, the biggest problem facing the telecom operators today continues to the low average revenue per user (ARPU).

There is another way of looking at this problem. Since voice tariffs in India are one of the lowest in the world, operators would like to launch value-added services to sustain and improve their current ARPU levels. And, 3G services will help them achieve that.

However, if the cost of spectrum is very high and the demand for 3G services too low (as has been experienced by the two state-owned telecom operators), the country runs the risk of converting its most boisterous industry into one that is sick and debt-ridden.

If the 3G auction does take place in December, private players should be able to launch 3G services by mid-2010. However, doubts are already being raised in the media about whether the auction will actually take place in December or not.

Today, over 120 countries across the world have already migrated to 3G. Any further delay in launching 3G will result in India lagging even further behind the global markets. Besides, consistent delays in the auction of 3G spectrum will send wrong signals to investors overseas.

Surely, this is something India can ill-afford.

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Swati Prasad

Swati Prasad is a New Delhi-based freelance business journalist. Over the last 15 years, Swati has worked in both Delhi and Mumbai as a correspondent and editor for India’s leading publications, such as The Economic Times, Business Standard and Business Today. As a freelance journalist, she regularly writes on technology, economy and corporate issues.