The 3G bonanza
New Delhi, May 19
As the auction ended after 183 rounds of bidding over 34 days, Finance Minister Pranab Mukherjee would have a smile on his face. Having projected a mere Rs 35,000 crore from the auction of the 3G spectrum and BWA spectrum in his last Budget speech, mopping up almost double the amount from just the 3G auction would greatly reduce the burden on him for the borrowings to bridge the fiscal deficit.
Aggressive bidding over the past few weeks ensured that the pan-India licence for the 3G spectrum would cost a whopping over Rs 16,750 crore. With four such licences to be distributed, as per provisional figures available, the revenue to be generated for the government would be over Rs 67,718 crore.
The government had kept the reserve price of Rs 3,500 crore for a pan-India licence and the final costing ended up almost 480 per cent higher. 3G services would allow users to access high-speed data and downloads on mobile phones.
The most successful bidders were the big three telecom operators of the country, Bharti Airtel, Vodafone and Reliance Communications. Looking to outbid each other over the weeks, the three gained strong foothold in the two most lucrative markets, Delhi and Mumbai, the cost of one licence where touched Rs 3,316.93 crore and Rs 3,247.07 crore respectively. The importance that the Delhi market holds for the three telecom operators came to the fore over the past two days. After lagging behind Mumbai for the latter part of the auction, the bidding for the national capital outpaced the country’s commercial hub over the last two days.
According to analysts, the aggressive bidding for Delhi and Mumbai was mainly due to the shortage of voice (or 2G) spectrum in the two cities. The winning bids for the 3G spectrum will allow the top three operators to use it to gain more of the voice subscribers, who also provide them with greater revenue.
The Karnataka circle ended up in the third spot with one licence for the circle touching Rs 1,579.91 crore. It was closely followed by Tamil Nadu at Rs 1,464.94 crore and Andhra Pradesh at 1,373.14 crore.
For the Punjab circle, where four licences would be distributed, the cost of the licence touched Rs 322.01 crore.
In all, nine private operators participated in the auction that ended with no single carrier winning high-speed third-generation spectrum in all 22 circles up for bid. While three of the four licences would go to the private players, the fourth will be sold separately for state operators, who would have to deposit the same bidding amount.
The 3G auction will be followed by an auction for wireless broadband spectrum, for which 11 firms are vying for two national licences for private operators, with one slot reserved for state telecoms firms. The government is expected to rake in Rs 15,000 crore from the auction slated to begin two days after the closing of the 3G auction.
Speculation is rife that the government may mop up as much as Rs 1,00,000 crore from the 3G, BWA and the outstanding amount from the 2G spectrum holdings.
India is a late adaptor of 3G and is the biggest economy not to offer such premium services on a wide scale, although the state-run telecoms firms have 3G services in some zones. China, the world’s biggest telecom market, took a long-delayed 3G plunge last year by awarding licences to the country’s top three phone operators.
In 2000, the UK raised more than $35 billion from a spectrum auction, while Germany collected about $67 billion from its UMTS licence auctions. In 2008, the United States raised $18 billion from spectrum auction.
Vodafone Essar, the UK giant’s India unit, will pay about Rs 11,617 crore for its India 3G mobile spectrum, according to data on a government website. Bharti, the country’s biggest carrier, would be paying around Rs 12,295 crore. Reliance Communications would be paying Rs 8,585.04 crore. Experts pointed out that since the operators would have to pay out a large sum of money, how it would impact the service prices and how it would be received by the subscribers would have to be seen. It could affect their profitability, experts said.
Bidding incidentally, will help the government plug its fiscal deficit, that last year reached a 16-year high.
Pranab Mukherjee in his Budget for 2010-11 proposed to bring down the fiscal deficit to 5.5 per cent of the gross domestic product (GDP) from 6.7 per cent a year ago.
As per estimates, he would have had to borrow approximately Rs 3.5 lakh crore for bridging that gap. With the auction amount in the pocket, the burden of borrowing would be greatly reduced.
The Finance Minister has gone on record saying that high returns from 3G auction do provide an extra elbow room to the government. When asked if it will ease the current fiscal deficit strain, Mukherjee said he would like to pleasantly “surprise” the country and an appropriate announcement would be made in Parliament.
Incidentally, the outcome of the auction is expected to exacerbate the gap between the haves and the have-nots in India’s crowded and fiercely competitive mobile market and eventually trigger a wave of consolidation.
What is spectrum ?
Spectrum is radio frequencies used to transmit voice, video and data.
What is 2G and 3G ?
Second generation and third generation spectrum. The fourth generation is being tested.
What are the 3G advantages ?
It facilitates high-end use and faster transmission of video images and data etc. 2G spectrum is used only for voice transmission.
How much did the govt get from 2G ?
The government did not auction 2G spectrum but allotted them to whoever applied. It mopped up approximately Rs 1,600 crore from such allotment.
What can the consumers expect ?
Better and faster service, TV on their mobiles and higher rates.
How will 3G affect services ?
By facilitating authentication, will facilitate financial transactions over the intrnet and make it safer and more secure. Will also improve quality of tele-medicine services.
Chandigarh, May 19
In a country with a tele density of 52 per cent and internet penetration of 0.71 per cent, doubts are now being raised on the success of the 3G service.
What is also being feared is that in case of slow acceptance of this service that will provide internet TV, video on demand, video calls and high-speed data exchange, the telecom players, who have spent huge amounts to get the airwaves for launching 3G, may be forced to increase mobile tariffs to make up for the heavy investments.
With the auction of the airwaves today, the nine private telecom companies - Bharti Airtel, Reliance Communications, Vodafone Essar, Idea Cellular, Tata Teleservices, Aircel, Etisalat, S Tel and Videocon Telecommunications, are expected to start offering the service only after six months. In case of a low acceptance, the tariffs could start rising within a year, fear industry sources.
The fear of slow acceptance by the price-sensitive telecom consumer here stems from the slow progress of the 3G service rolled out by the BSNL in February last year. The company was the first one to launch 3G service, but in more than a year, it has been able to get only 1.15 million subscribers, of a total customer base of 63 million. As of now, the service is available across 420 cities across the country. Interestingly, the rates offered by the company too are economical, with voice calls at 50 paisa per minute and video calls at 70 paisa per minute.
Top officials in the BSNL said the reason for the slow progress was mainly that the penetration of 3G-enabled handsets was just around 15 per cent. “Thus, a few people have opted for this service. But during this fiscal, we hope to see a substantial rise in this customer base. We will roll out the service in 340 cities (taking the total to 760 cities) and hope to have 3 million customers by March 2011,” he said.