Is 3G equal to Rs 35,000 crore?

The buzz never seems to stop as far as 3G in India is concerned. Back in mid-2005, well before Dayanidhi Maran’s abrupt -removal as Union Minister for Telecom in 2006 (thanks to Chennai politics), there was talk of auctioning 3G spectrum. The Department of Telecom (DoT) was haggling with the Ministry of Defence to vacate spectrum in the 2100 MHz band, which is used to offer third-generation mobile (3G) services. The Telecom Regulatory Authority of India (TRAI), meanwhile, was working on papers suggesting how spectrum allocation should happen. Telecom operators were also bullish, talking of 3G services and handset vendors were just about rolling out their first 3G-capable handsets.

Move forward four years, and everyone is still haggling over 3G, just add the Finance Ministry and the Prime Minister’s Office (PMO) to the mix. There’s plenty to haggle over: At what cost should the service be launched? How much money should an auction raise for a debt-ridden government? Rs 35,000 crore is now the official figure, with the July 6 Budget stating this to be the expected revenue. Then, there are other issues such as a lack of spectrum because the defence services are still holding on to them (though they are slowly vacating) and a Telecom Minister mired in controversy after the fire-sale of 2G spectrum last year.

The only people keeping quiet this time, though, are the telecom operators, who are holding their cards close to their chest and are wary of irritating the powers that be. However, some of the operators unofficially declared that they are not very happy at the high prices being quoted as the base price for an all-India 3G licence. They argue that the mistakes of 1996, when mobile services were launched at exorbitant rates—a minute’s call cost Rs 32 then— should not be repeated. A high auction price, they say, would lead to a high price for the service offering, defeating the purpose of 3G and delaying its mass-adoption by several years.

But all the latest buzz notwithstanding, there is still little likelihood that the 3G auction at whatever price will fail like the auction for 2G spectrum held in the early 1990s when several category ‘B’ and ‘C’ circles did not have bids. The telecom revolution means that over 400 million wireless connections are active in India today. This user base is expected to grow to some 730 million by 2012 and of this every fifth user is expected to use a 3G connection. The auction of 3G and Broadband Wireless Access (BWA) spectrum is important to offer greater value-added services to customers, and more. Current GSM and CDMA spectrum is very crowded in India, leading to network congestion in several metropolitan areas.

New 3G networks handle voice calls far more efficiently, with 10 times the capacity for a similar slice of spectrum. They can also dramatically speed up data services to mobile devices, and with telecom operators and handset vendors predicating their future success on data-enabled services, this is crucial. BWA, which will probably be delivered using technologies such as WiMax, is also crucial for India’s computer industry and for the government’s ambition of getting broadband to every part of the country before its term runs out. With only 6 million broadband connections, India is far behind in the adoption curve.

However, above all else, they are screaming that the auctions should happen as soon as possible, every day delayed means a lost revenue opportunity. But a speedy auction should still be extremely transparent and A. Raja, the IT and Telecommunications Minister who faced flak for the seemingly seedy allocation of 2G spectrum during his previous stint last year, would want to avoid potential legal pitfalls by ensuring this.

The only people not terribly worried are equipment vendors. Virtually every device above the Rs 10,000 bracket is High-Speed Packet Access (HSPA) capable. HSPA (called 3.5G in some parts) is going to be the standard used by most GSM operators in India to offer 3G services. As far as BWA goes, Intel is incorporating WiMax capabilities in its next generation of micro-processors.

If an auction happens soon, users of phones could be making video calls, and users of devices such as the iPhone 3Gs will finally be able to make full use of them. If it doesn’t, the buzz around 3G would still continue.

The auction plan

• Up to five blocks of 2x5 MHz of spectrum in the 2100 MHz range will be allotted for 3G services, with one block reserved for BSNL/MTNL
• Four blocks of 20 MHz each will be allotted in the 2300 MHz and 2500 MHz range for Broadband Wireless Access (BWA) via WiMax technology, with one block reserved for BSNL/MTNL
• BSNL/MTNL will have to match the bid of the highest private bidder for 3G and BWA services
• Operators who decide to offer 3G services using CDMA technologies (Reliance and Tata Indicom) will have to match the highest bidder for 3G services (offered over HSPA- or GSM-enabled phones). But they will have their price reduced pro-rata due to lesser spectrum usage
• The floor price for a nationwide licence in the 3G auction was set at Rs 2,020 crore by the Department of Telecom (DoT), but the Finance Ministry increased that to Rs 4,040 crore
• The floor price for BWA licences was also doubled to Rs 2,020 crore by the Finance Ministry
• However, there is still a spectrum crunch—there is no 3G spectrum available in Rajasthan and the North-East and only two slots available in Delhi (India’s largest telecom market) and Gujarat
• The Defence Forces have recently cleared out 25 MHz, of which 15 MHz is for 3G and are expected to vacate an additional 20 MHz shortly. This should allow for at least two ‘nationwide’ 3G operators other than BSNL/MTNL