Doubling of 3G price queers pitch

The doubling of the reserve price of 3G spectrum is likely to drastically alter the demand map for 3G spectrum.

Sources say the move will force companies to reconsider their priorities in terms of the circles they want to bid for. While the higher price may increase government’s revenue from a few congested and urban circles such as Delhi and Mumbai, it may lead to “empty slots” in low-revenue circles such as Orissa, Bihar and the North East.

Earlier, it was assumed that players will bid for all-India 3G rollouts. But the dearer spectrum could result in “moth eaten” networks, said sources.

“Till now, we have had nearly everyone make enquiries about the equipment, including the recent entrants... But with more expensive spectrum, many may restrict their 3G ambitions to certain circles and ignore the others,” an official with one of the network equipment makers said.

“I think there will some kind of rollout obligation on the winners,” said Romal Shetty, head of risk assessment services for telecom with consulting and audit firm KPMG, India.

” That and the higher price tag will reduce the interest from some of the new players.”
The cost factor is seen offering an advantage to the established operators — Bharti Airtel, Reliance Communication, Tata Teleservices, Vodafone, Idea Cellular and Bharat Sanchar Nigam.

A fresh 2G network rollout, including putting up the towers and rooftop installations, will cost around $50-60 per line. However, a data-enabled 3G network may end up costing “substantially more,” according to a hardware vendor, as unlike a 2G network, data connections are “always on” and not disconnected after a call is through, like in a 2G network. As a result, rolling out a 3G network with a capacity of 20 million subscriber lines may cost around $2 billion (over Rs 9,000 crore).

The established players stand to benefit by virtue of having passive infrastructure in place, which can reduce the investment required almost by half.

Also, none of the new players (Etisalat-Swan, Sistema-Shyam, Unitech-Telenor, etc) is in immediate need of more spectrum, said Shetty. “The fact is, people are not going to come to me yet because I have 3G. Such services are yet to be established in India. So, if even my basic value-added-services are not selling, why would I incur extra expenditure on setting up one more network?” he asked.

In contrast, most of the networks of existing players are fully utilised. “Their towers are close together and they can surely benefit from extra spectrum to redirect some of their voice traffic,” said Shetty.

But, of course, it is possible that some completely new entrants, who have no presence in the country, will put in bids for specialised telecom offerings through 3G. “Till we know the finer details, such as whether a 3G operator will also need a 2G licence, we cannot speculate much on that possibility,” said Shetty.

With inputs from Amit Tripathi