Monday, September 8, 2008

Indian 3G spectrum auction process begins Monday

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The process of allocating 3G spectrum to telcos is to kickstart on Monday with the pre-bid conference to select the overseer of the e-auctions for the 3G spectrum for both GSM and CDMA services. 3G spectrum winners will be known by early October. The auctions are expected to raise U.S.$ 10 billion or more of revenue for the government which would make the telecom department one the the biggest profit centers for the government.

Now what is to be seen keenly is how the telcos - both domestic and foreign take to the e-auction. There have been misgivings about competing in the 2G space from foreign bidders. The DOT had changed the rules so that foreign telcos could merge or buy stake in local players on entering the Indian market and this ought to assuage their feelings.

One more aspect to be watched is the final cost of the 3G spectrum and its effect on the 3G rollout. A high floor price would push the final prices so high that bidders would use up their revenue on the licenses and would have to wait for deploying the network infrastructure - the next step for telcos. This has happened in EU markets most notably in UK. In spite of the delay in launch of 3G services, 3G penetration had picked up fairly well. In the Indian scenario such a thing though wished by telcos might not be so easy. This would need very competitive end-user tariffs and very impressive differentiated services. This would call for huge spends upfront before a good monetization trend sets in. Setting an optimum floor price would hence be the challenge for the telecom ministry.

The challenge for TRAI would be to oversee proper timely rollout of 3G services in all circles with undue delays by the telcos. TRAI would also have to keenly look at how and what kind of recommendations are to made on the MVNO policy. This would also be critical as many foreign players might prefer to enter the market as MVNOs in order to avoid high license fees. TRAI's recommendations would some day tell on the rate of penetration of 3G services in India.

The challenge for the telcos would be about offereing high quality differentiated services and  make enough money to reinvest in their new new 3G networks. In this respect the telcos would also need to fix attractive tariffs that would work for them too. Another aspect telcos would be focussing on is MVP - mobile number portability - which might necessitate a rethink of telcos' strategies about retaining and growing subscriber bases.

The challenge for the user is to embrace 3G technology without falling for hype and demand high quality services from the telcos by rewarding the best offering and not to look at price alone.


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