The situation could not be more ironical? five years late and several committees later, the country is finally on the threshold of entering the 3G services era, but mobile operators are not exactly in a celebratory mood. The reason: most of them feel that the Rs 3,500 crore reserve price set by the empowered group of ministers for the auction of the spectrum is on the higher side, which may make services unaffordable and businesses unviable. Ideally, according to the operators, the reserve price should be either Rs 1,020 crore or Rs 2,020 crore. It is still early days but industry estimates peg the final auction price to be in the range of Rs 8,000 crore. Add another
Rs 5,000 crore for network and transmission costs and the operators would have to invest roughly Rs 13,000 crore in rolling out 3G networks and services, a princely sum in these times when funds are hard to come by.
For greenfield 3G projects?though there?s hardly any prospects of any new foreign operator bidding for 3G spectrum?the cost would be even higher at around Rs 17,000 crore.
So, is the 3G service dead even before being born? Would such unviable business prospect keep operators out of the bidding process rendering the entire exercise useless? Even if services are commenced by some would it be so costly that there would hardly be any subscriber for it? Some industry associations would like to answer in the affirmative, but nothing can be farther from truth. If anyone points to the poor response to the 3G services being offered by BSNL and MTNL to prove the case, the comparison is not apt. The two service providers neither have the required category of users, nor do they have marketing savvy to smart sell new, technology services.
For starters, it would be worth knowing that globally, 3G services are slow in capturing market share. It takes about three to four years to achieve a market share of 10-12%. Secondly, the Indian telecom experience shows that the tariffs for services have no relationship with the cost of setting up the networks and acquiring spectrum. The number of players in the market and the competition which is prevalent would ensure that the tariffs would be market-determined rather than following any cost-plus formula.
Further, nobody is expecting 3G services, at least in the initial phase to be as cheap as the current 2G services. 3G service by its very nature is a premium service and therefore the spectrum auction is expected to be the fiercest in circles like Delhi, Mumbai or Bangalore rather than C category circles like Bihar or Orissa. Irrespective of the reserve price no serious operator, which is already in the market can afford to ignore 3G services at this point in time because technology takes time to catch up. But once it does, it happens at a great speed and puts late entrants at a great disadvantage. Let?s look at the evolution of 2G mobile services in the country. Tariffs were as high as Rs 16 per minute till early 2000 but with the advent of the CDMA revolution and incoming calls getting free, the post-2003 phase saw growth happening at great speed. Operators who had started becoming pan-India operators early on are reaping the benefits today in comparison to the ones who only started in this direction post-2004.
Most industry people agree that initially 3G would be used more for voice than data services. Herein lies the great opportunity for the 2G players who are facing spectrum crunch in cities like Delhi and Mumbai. By moving the high-paying customers, who would be natural 3G customers to this service, they would be easing their 2G spectrum space to enroll more mass users. An intelligent bidding by combining 3G and WiMAX spectrum would give the operators the best results in terms of costs and results. The reserve price for WiMAX spectrum is 25% lower than 3G services and the cost of setting up network is also one-fourth. WiMAX is better utilised for data services and high-speed wireless broadband.
Even if one accepts that rolling out 3G networks would be costly, consider the fact that operators hardly have to invest much for 2G services, where the returns are attractive even with low average per user realisation. For instance, the cost incurred by an operator to provide a new connection comes to about $1.8 yielding an average Arpu of $7! In which other sector does one find such handsome margins?
So, while a lower reserve price would have been more attractive, the one currently agreed upon is not disastrous by any account, and the brighter side is that it is lower than the oft-touted Rs 4,040 crore. Rather than crying foul over the lack of a business case for 3G services, operators should now busy themselves preparing strategies to make up for the late arrival of 3G services.
rishi.raj@expressindia.com
