We should be thinking 4G...

Written by Ravi Visvesvaraya Prasad | Updated: Aug 13 2008, 04:19am hrs
3G has taken a long time to come to India, eight years after it was introduced in Europe, and when cellular operators worldwide are working on the introduction of 4G services in the next few years.

And the delay was mostly due to bickering between the Telecommunications Regulatory Authority of India (Trai) and the department of telecommunications, with additional interference from the finance ministry, the planning commission, and the Prime Ministers office. Even though Trai had begun work on its recommendations for 3G services over four years ago, it was only on August 1 this year that the government finally issued the guidelines. And it will probably be the end of 2009 before Indian consumers will benefit. Meanwhile, even Bhutan and Sri Lanka have launched 3G services.

Various factions in government differed vehemently on crucial issuesis the Indian subscriber ready to pay premium prices for 3G, given that 3G services were a commercial failure in Europe due to high tariffs; should existing 2G service providers be automatically allowed to provide 3G services; should new players be allowed; should foreign players be allowed; should licences be auctioned or allotted on the existing first-come-first-served basis on a revenue-sharing basis; what should be the reserve price of an auction; how should existing users of the 3G spectral bands be made to vacate; etc.

In brokering the peace between various factions, the Prime Ministers office has done a superb job of balancing various interests. Each interest group has had some of its demands met, with others being rejected. None can claim victory.

The finance ministry, as well as the central vigilance commissioner and the comptroller and auditor general, are happy that the 3G licences will be auctioned rather than allotted on the existing first-come-first-served basis.

The existing 2G licencees are glad that they do not have to apply for a separate 3G licence, and that the terms of their 2G licences have been extended to make them co-terminus with the 3G licences.

Foreign telecom operators, who wanted to enter the fastest growing telecom market in the world, exerted heavy political pressure through their governments that they be allowed to provide 3G services. Trai repeatedly recommended that only existing 2G service providers be allowed to provide 3G.

While both new and foreign operators have been permitted to bid, it has been made difficult in a practical sense for them to take part. Since only 5 MHz of 3G spectrum will be allotted per operator, it will be difficult for a pure-play 3G operator, who does not have 2G operations, to roll out a network.

This is because 2G operators need only 5 MHz of 3G spectrum to start 3G services, whereas a fresh 3G operator will require at least 10 MHz of 3G spectrum in order to operate. Existing 2G operators can use some of their 2G spectrum for back haul and infrastructure purposes. Also, they will migrate the 10% or so of their high-end customers to 3G, and serve the remaining low-end customers with 2G. While prospective new entrants had lobbied hard for obtaining at least 10 MHz of 3G spectrum, the existing 2G operators had advocated only 5 MHz per operator. So, while appearing to accede to the demands of powerful foreign operators, the government has favoured the existing Indian operators in mind.

The Left parties and the unions have also been appeased in that both BSNL and MTNL have had one 3G slot reserved for them. They have to match the highest bid. BSNL has already announced the placing of orders on Ericsson, as well as an IPO. It should have a head start over the private operators of 3-4 months. It is ironic that an Indian operator, Bharti Airtel, has launched 3G services abroadin Seychelles, Jersey, Geurnsey, and shortly in Sri Lankabefore it can be permitted to operate in India. The existing GSM operators, who were unhappy that they had only about 6-7 MHz of 2G spectrum each, against the international norm of 20-22 MHz, are gratified that 45 to 60 MHz of 3G spectrum will be available in most circles. This will permit 9 to 12 operators per circle. The increased competition will benefit subscribers.

Lobbying by Amar Singh on behalf of the Anil Ambani-led Reliance Communications has benefited existing CDMA operators over GSM ones. They can get EVDO in the 800 MHz and 450 MHz bands, besides being eligible to bid for 2.1 GHz as well. This partiality to CDMA operators to the detriment of GSM operators may lead to litigation.

In fact, 3G services may be far more successful in India than in Europe. First, the astronomical prices paid by European operators to secure 3G licences made them price their 3G services very high, with the result that only about 7% of their subscribers opted for 3G. Second, the prices of handsets were very high a few years ago. Today, over 15% of the handsets sold in India are 3G-enabled. The competition between Apples iPhone (to be launched on August 22 by Bharti and Vodafone) and various Nokia models will keep 3G handset prices low.

3G would also allow the penetration of broadband to low income groups and rural areas which cannot afford a computer. I expect that about 15 to 20% of Indian subscribers would opt for 3G, in contrast to the 7% in Europe.

The writer is an alumnus of Carnegie Mellon and IIT Kanpur. He heads his own telecom consulting firm in New Delhi