India plays hard to get

What is happening in India’s upcoming spectrum auctions – or maybe it’s more accurate to say what is not happening – is no doubt frustrating for both the WiMAX and 3G communities.

Ken Wieland, Contributing Editor

January 9, 2009

3 Min Read
India plays hard to get

What is happening in India’s upcoming spectrum auctions – or maybe it’s more accurate to say what is not happening – is no doubt frustrating for both the WiMAX and 3G communities.

Seasoned watchers of India’s telecom markets might not be surprised by the latest delay in the BWA (read WiMAX) and 3G spectrum awards, where all too often the country’s operators and regulators get bogged down in either courtroom disputes or the threat of legal action. But that will be scant consolation to the WiMAX and 3G camps, which understandably want to push ahead with commercial network rollouts as soon as possible.

Putting the latest spanner in the licensing works is India’s Finance Ministry (Finmin), which has made an audacious proposal to double the previously proposed reserve price for a pan-Indian 3G licence to Rs 4,040 crore ($830m).

This is important for WIMAX because – at least for the time being – the base price of BWA spectrum (in the 2.3GHz and 2.5GHz frequency bands) is calculated at 50 percent of the 3G spectrum on a per MHz basis. That means the reserve price for pan-Indian WiMAX licence, if Finmin’s proposal is accepted, goes up from Rs 1,010 crore ($207.5m) to Rs 2,020 crore ($415m).

The immediate result of Finmin’s intervention is to push back the 3G and BWA auctions from 12 January to 30 January at the very earliest.

The good news for WiMAX and 3G supporters is that the Department of Telecommunications (DoT) is reportedly not keen on the price hike and, according to local press reports, the Department of Industrial Policy and Promotion (DIPP) and Ministry of IT have both given it the thumbs down as well. Even so, the Cabinet Committee on Economic Affairs (CCEA) is charged with making the final decision and is now reviewing all the options on India’s spectrum auction policy, which include Finmin’s proposal.

Given the unprecedented difficulty in accessing capital on the world’s financial markets, the timing of Finmin’s proposal looks odd. Yes, it may well be concerned by an apparent low level of interest in India’s 3G licences among foreign investors – as has been reported – and so might want to give itself some protection from conservative bidding, but it seems short term thinking to try and dramatically increase the reserve prices for 3G and WiMAX licences.

There is the obvious risk that WiMAX and 3G operators will be tempted to enter the market with higher retail prices than they would have done previously if the proposal goes ahead, which could lower the pace of penetration growth. Moreover, the relationship between increased mobile/broadband usage and greater economic prosperity, particularly in emerging markets, is becoming well established. According to a commissioned report by the GSM Association, undertaken by Deloitte, it was found that a ten percent increase in mobile penetration leads to a 1.2 percent increase in annual GDP.

But given the enormous potential for growth in India – broadband penetration stands at around four percent in a country with a population in excess of 1.1 billion – suitors for the pan-Indian 3G and WiMAX licences may already have calculated that the business case still makes sense, even if bidding starts at the higher reserve prices. As such, Finmin might merely be trying to make sure that spectrum isn’t given away on the cheap rather than being outright greedy (although this does seem an overly generous interpretation on Finmin’s actions). However, the growing strength of the US dollar might also have been a factor in Finmin’s double-up proposal.

Despite the latest hiccup in the licensing process, WiMAX still has an enormous opportunity in India and progress there will help give the technology the increased economies of scale to compete even more effectively in other markets.

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