all the Indian mobile operators are loss-making. It is quite unclear if 3G uptake would turn them profitable or if the operators need to wait for efficiency due to mergers or acquisitions.
The response to the much-hyped 2G auction due to the cancellation of 122 licences has been muted, resulting in much lower revenue for the government, against the target of R40,000 crore. While there were no participants for CDMA auction, for GSM there were no bidders in four key circles. The base price for pan-India spectrum was set at R14,000 crore, and R18,200 crore for 1800MHz GSM and 800Mhz CDMA spectrum, respectively. This base price is 4-7 times higher when compared with the base price during the 3G spectrum auction held in 2010 or during Raja’s allotment to companies in 2008. The telecom regulator has justified the high price by citing that tariff would go up only by a few paise. However, a report by PwC shows that the tariff can go up by 90 paise in metros. In general, most analysis indicates an increase of anywhere between 25-50 paise per minute. This is quite substantial considering the current call rates and could reduce phone usage due to the highly elastic nature of the Indian market.
Due to intense competition, the average revenue per user (ARPU) for mobile operators is less than R100 and this is among the lowest in the world. The ARPU in advanced countries is over R1,500-2500, and even China’s ARPU is over R500. A news report indicates that the reserve spectrum price for the November 2012 2G auction is costlier by many folds, when compared with other countries, when ARPU is used to compute the purchasing power parity of operators.
In the book Telecom Revolution in India, Dr V Sridhar explains that the operators experienced “winner’s curse” during the 1995 spectrum auction. Due to excessive pricing, the operators who won the bids could not afford to pay and the government had to bail them out later. The government should ensure that the 1995 situation is not repeated. In fact, the ill-effects of high 3G spectrum prices in Europe