Third generation (3G) services, which provides for faster data download and video streaming, would be a tough call for foreign telecom firms as the investment would not make economic sense for them. The new players would have to invest upwards of Rs 17,000 crore to support a measly customer base of 50 lakh.
Since they would have to provide voice and data on a 2.1 GHz spectrum, the quality of service would also suffer.
Though none of the global telecom firms were willing to come on record, they expressed such concerns off the record to FE.
This is how the numbers work: Any global telecom player with experience in 3G services, if gets the 2.1 GHz spectrum through the auction, would first have to acquire a mandatory universal access service licence (UASL). A pan-India UASL costs Rs 1,651 crore. According to industry estimates, the bid for the spectrum would be around Rs 7,500-8,000 crore. Therefore, these players would have to pay around Rs 9,651 crore for licence and spectrum alone.
A minimum subscriber base of 50 lakh would be required for an operator to reach the break-even point. To create the base, the operator would have to put up a network line capacity of 1 crore, which would cost around Rs 7,500 crore, with around Rs 3,500 crore going towards equipment costs and the balance towards transmission & infrastructure cost. This means, around Rs 17,151 crore investment would go in setting up a network.
Further, the quality of service would suffer as these operators would be have to do both voice and data in the 3G spectrum, which is in the 2.1 GHz band. As per the telecom policy, these operators would not be given spectrum in the 1,800 MHz band, which is for 2G voice services.
If the 3G spectrum is used for voice and data services, the quality of one of these is bound to suffer.
The tele-density level in the country is already reaching 30 per 100 person and the average revenue per user (Arpu) is around Rs 200. By the time 3G services starts, which is safely six months ahead, tele-density levels would have further increased and Arpus would have come down to Rs 150. This means, the business scenario would be bleak for the new operators compared to the cost of investment, as 3G is a premium service.
Even if the government relaxes the current mergers & acquisitions (M&A) norms, which prohibits new licencees from selling out before three years, the costs for the new players are not going to come down.
By buying the new licencees the only cost global players would save is the licence fee of Rs 1,651 crore. But the existing licencees are sure to charge a hefty premium for the same. So, the M&A route would be more expensive for a global player. The new licencees do not have network or subscribers, so hardly any other gain would come to the global firms.
In comparison, the existing telecom firms like Bharti Airtel, Reliance Communications or Vodafone Essar would be major gainers. One, these firms would pay no licence fee but only the bid amount. Further, these companies have huge a subscriber base so they can segment their users into masses and premium, with the latter given the 3G services. By moving the 3G users to a different spectrum band, existing players can accommodate more users in their 2G services, thereby, tiding over the spectrum crunch.
The investment cost would also be less for the existing players. Apart from saving on the licence fee, their cost on network would be around 50% less than the new players because they would have to spend less for infrastructure.
Interestingly, the government went against the Telecom Regulatory Authority of India?s recommendation to allow global firms to bid for 3G services, arguing that there would be more competition and resultant higher revenues for it. It remains to be seen if this comes true.
