3G in India: No easy path for foreign telecoms

NEW DELHI: Foreign telecom firms could gain access to India's booming mobile market through a global auction of 3G licences this year, but low call rates and established players mean it could take years to turn a profit.

Foreign telecoms with 3G experience are allowed to bid at the auctions, opening the way for firms such as AT&T, Etisalat, NTT Docomo to gain a foothold in the world's fastest-growing mobile market. But India's 2G operators, including Bharti Airtel, Reliance Communications, Vodafone Essar and TM International-backed Idea Cellular, are not going to cede their territory easily.

"There will be a mad fight," said Madhusudan Gupta, a Singapore-based analyst with research firm Gartner, which sees Indian mobile users rising to 737 million by 2012 from nearly 300 million now, with 20 per cent of those using 3G.

"You have a long queue of foreigners. The potential is enormous in India." Five 3G licences will be available for most of India's 22 service zones, although limited spectrum means there will be a maximum of three in large cities such as New Delhi and Mumbai. Next-generation high-end 3G services give users a chance to enjoy fast Internet access, games and a host of multimedia content from maps to music on their cellphones, areas where 2G has been handicapped by a slower data transfer capability.

India's mobile user base increased by 25 times between 2002 and 2007, but a winning bid will not be a licence to print money, especially for a new entrant up against India's cheap call rate model. Local call rates are less than 1 U.S. cent a minute, and local operators want to implement the same style of model in 3G.


"In India tariffs have to be where Indian tariffs are," said Sunil Mittal, chairman of top mobile firm Bharti. "The idea in India is to provide telecom services at most affordable rates."

3G IS NOT EASY

The low-cost plans will be a challenge given 3G has been associated with high-tariff structure globally, as new operators have to put up billions of dollars for licences and networks. India has set a base price of 20.20 billion rupees ($435 million) for a national licence. Actual bids are expected to be higher, especially in lucrative centres such as Mumbai and New Delhi, as the government is looking to raise up to $9 billion.

Foreign telecom firms not already in the Indian market will also have to fork out 16.5 billion rupees ($355 million) for a telecoms licence, which the existing operators already have. "It is not going to be a cakewalk. It will be kind of a Catch-22 situation. You will have to spend so much, but you can not pass on in the same proportion," said Gartner's Gupta.


Source : Economic Times