Indian 3G spectrum auction: milestone or millstone?

The 3G cellular portion of India’s telecom spectrum auctions have just concluded—raking in over  Rs 67,000 crores ( Rs 677 billion or $ 1.5 billion) for the exchequer—almost twice what was expected. But by scooping in all the money right away, is government killing the goose that laid the golden egg, asks PRASHANTO K. ROY, Chief Editor, Cybermedia group of publications:
The figures are staggering. It may look like a stroke of genius by the government, and may be poised to wipe out a tenth of our fiscal deficit, but that is a short-sighted view. Operators are going to be hard pressed to recover the money, while keeping voice and data services affordable.

Affordable mobile data services and high quality mobile voice would have given a big boost to industry and the economy, employment, tax collections. The finance ministry has taken the easier way out--taking all the money upfront. This is not unlike what hotels in India did by overpricing phone calls (and later wi-fi), forcing customers to use alternatives. A simpler parable is of the goose that laid the golden eggs.

I am not suggesting that the operators will collapse and die under the strain: they are innovative, and will find ways to thrive just as they managed to remain profitable in the world's lowest ARPU regime while facing unique cost pressures like diesel genset backup for thousands of mobile towers. But it will not be easy. Other than the nearly Rs. 70,000 crore spectrum license fees, the leading telcos have to worry about the premium they will now pay for the 2G spectrum they own in excess of 6.25 MHz. The pressure to recover the investment will be very high. If it could be recovered from the entire mobile base, it would be easier, but nine-tenths of that base is low-ARPU prepaid customers. Taking the postpaid base, the telcos have to somehow recover over Rs 10,000 per customer for just the license fees.

What we would see, therefore, is high initial pricing of 3G data services. That would be India's second 3G market fiasco, the first being when the BSNL-MTNL duo were allowed to launch 3G services a year ahead of the rest, and failed to get any traction. I sincerely hope this does not happen, and that the operators are able to come up with innovative ways to launch affordable data services--and raise the quality of voice service, while keeping it affordable.

May 22 2010