No extraordinary favour is being done here

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There is an opinion that in an era of privatisation, BSNL and MTNL should not be automatically allotted one slot of 5 MHz of 3G spectrum without participating in the auction. As per the guidelines issued in August 2008, both BSNL and MTNL will not have to participate in the 3G-spectrum auction, but will have to pay a fee equal to that of the highest bidder. Another argument is that this will give BSNL and MTNL a lead time of several months in entering the market, since they can purchase and install equipment before the 3G spectrum auctions take place around the end of 2008.

However, there was discrimination historically against BSNL and MTNL in that they were not allowed to participate in the initial allotment of 2G licences. When the bids were called for providing GSM services in the four metros in 1992 (allotted in 1994-5), MTNL and the Department of Telecom (forerunner of BSNL) were specifically disbarred from participating. Similarly, when the GSM tenders were called for the circles in 1995, MTNL and DoT were not permitted to take part.

MTNL and DoT were finally permitted to provide GSM services as the third cellular operator only after the implementation of the New National Telecom Policy of 1999. When MTNL was finally permitted to commence GSM services in Delhi and Mumbai in March 2001, Bharti already had 3,28,000 and Sterling had 2,18,000 subscribers in Delhi. In Mumbai, BPL had 2,59,000 and Hutchison Max had 2,52,000 subscribers. And these constituted the high-income groups. Similarly, BSNL was permitted to start services only in October 2002, when there were already three well-entrenched operators in each circle, catering to the affluent classes.

BSNL and MTNL had perforce to go after the lower income groups of subscribers. In particular, BSNL had to operate in rural and remote areas, where the cost of reaching out to a subscriber is higher than in urban areas, whereas the revenues are much lower than in urban areas.

Today, BSNL's Average Revenue per User per month (ARPU) is Rs 196 for prepaid subscribers (90 % of its total subscribers) and Rs 330 for post-paid subscribers (10% of its total subscribers). In contrast, the ARPU for prepaid subscribers is Rs 282 for Reliance Communications and Rs 350 for Bharti.