India 3G Auction Could Net US$7.2 Billion

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India expects to raise INR 350 billion (US$7.2 billion) from its 3G auction which is a figure mentioned by its finance minister Pranab Mukherjee in the 2009-10 budget presentation earlier this week.

The revised estimated revenue is 75 percent higher than the figure of INR 200 billion (US$4.2 billion) indicated in the interim budget in February. There have been media reports of differences within the government about the original reserved price of INR 20 billion (US$408 million) for each license. After securing 2G licenses earlier, local telcos raking in vast amounts by offering stakes to foreign telcos have provided grounds for criticism that the previous rounds of reserved prices set were too low.

Decision on 3G in three months
In early July, its communication minister A Raja reportedly said an empowered group of ministers (EGoM) will make a decision to resolve the differences between the Telecom Regulatory Authority of India and Department of Telecommunications. He reportedly said that in the next three months the EGoM will make decisions on issues pertaining to number of blocks to be auctioned, the reserved price and annual administrative charge for 3G licences.

Without bidding, two state-owned telcos have been awarded 3G licenses and are progressively implementing new services. The two telcos, Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) are committed to match the highest bid for 3G licenses in the circles where they have operations.

State-owned telcos gearing for competition
BSNL has its 3G network covering 150 cities by July and aims to cover 1,000 cities by next March. It is targeting 300,000 customers for the high-speed network by this September and 1.2 million by next March. MTNL has invested INR500 million (US$102 million) so far and expects to net 300,000 customers for its 3G services by end 2009.

Borrowing a page from its competitors, BSNL wants to extend the reach of its sales network and has opened invitations to retailers. It also sought bids from consultants to advise on its expansion outside the country. Keeping an eye on the payment for 3G license, it has held out the possibility of stock exchange listing or offering a stake to foreign investor which is pending government approval and consensus of employees.

Market still growing
With its large population base and the fastest growing telecom market, India continues to be in the radar of foreign telcos looking for growth opportunities. By the end of May, the telecom market recorded 452.9 million subscribers for India to have an overall teledensity of nearly 39 per 100 persons.

An annual survey of telecom equipment for the year 2008-2009 by local technology publisher Cybermedia in June revealed that Indian telecom equipment market beat the downturn to grow 20 percent to nearly INR1.1 trillion (US$25 billion).

From 2009 to 2013, total mobile revenue in India is projected to grow at 12.5 percent annually to exceed US$30 billion and cellular subscribers are forecast to top 771 million, according to Gartner. India is expected to achieve a mobile penetration rate of 63.5 percent then.

Another research firm, Business Monitor International, has a more upbeat outlook about the telecom sector projecting that subscribers in the country will grow beyond one billion by 2013 and a mobile penetration rate of 91 percent.

The numbers notwithstanding, the telcos are looking at two growth drivers. Low cellular penetration entails that the rural areas will fuel telecom growth. The other growth driver is new services in way of broadband, IPTV, 3G and broadband wireless access including WiMAX services. By early 2009, the local broadband take-up rate was just 6 million reflecting the tremendous scope for growth.

However, the competition can only get hotter as mobile tariffs in India are lowest globally, compared with other countries, and is slated to drop by 20 percent in 2009 with more new players coming onstream, such as Unitech and Sistema Shyam TeleServices, branded under MTS India.

Different strategies for growth
While India continues to be attractive to foreign investors, its home-grown telcos like Tata Communications, Bharti Airtel and Reliance Communications are eying overseas opportunities.

Bharti Airtel and South Africa’s MTN are reportedly in a due diligence phase with media reporting a possible conclusion to their merger negotiations by mid-July. If successful, it will create the world’s third largest telco with subscribers exceeding 200 million.

With an eye on the enterprise market and managed network services, the non-state-owned telcos have made strategic investments ranging from participation in submarine cable networks to data centers at important global nodes.

Towards the end of June, Tata Communications announced its partnership with Starwood Hotels to roll out teleconferencing facilities at the resort’s properties worldwide. Tata Communications will open 10 such facilities in Starwood’s hotels by the year-end.

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