Tuesday, June 15, 2010

Are the huge investments in 3G spectrum justified for the telecos?


Jeeva S, IIMS

Andrew S. Grove in his book “Only Paranoids Survive” has rightly pointed out that every industry passes through a SIP (Strategic Inflection point), where the rules of the game are completely changed and there is a paradigm shift in the way the business operates.

The Indian telecom industry is now passing through one such phase, with the ARPUs (Average Revenue per User) of all major players at an all-time low. The only way out of this is to move from the declining voice based services to burgeoning data based services.

Here comes the importance of 3G Technology. To effectively stay in the operation every established player has to adapt themselves to the changing business scenario; reason why, every service provider bid frantically. Although the prices of the bids looks exorbitant it’s normal, considering that the Indian telecom market is one of the fastest growing markets in the world and it’s a question of survival for the telcos. An underpenetrated market, with a teledensity of 45% when compared to the global average teledensity of 78%, with data based services having penetrated to just over 7%, the Indian telecom market offers enormous opportunity for the 3G service providers. Yes, initially it may be difficult to upsell 3G Technology but with the advent of cheaper smart phones, growing data services, increasing usage by youngsters and in rural are for purposes(like ITC’s e-choupal) coupled with the growing customer base should make the job easier.

With 4G Technologies, LTE still in infancy and Wimax requiring a fresh infrastructure, there should be sufficient time for telcos to break even and make profits. The mystery in the huge investments in 3G would be history once people start realizing that Voice is History!


Ankit Jalla, Welingkar, Mumbai
The current scenario is uncomfortably reminiscent of the 3G auctions in Europe, 2000-01. Billions of dollars were raised by the respective Governments and in less than a year, telcos had to give pink slips to around 100,000 people. Operators were on the verge of bankruptcy and it took them several years to regain financial stability. Telecom companies here could go through the same; nine of them together will be shelling out a jaw dropping amount of Rs.67,719 crores for a 20 year license to provide 3G services across circles.

Indian operators will most likely bleed post-3G auctions and even a possibility of some players crumbling down looks imminent. Operators have paid double the amount Government was expecting and have been extravagant rather than being rational.

The payments have to be made within ten days of the last bidding day and that’s just not it, this is only the entry cost. Operators will have to spend enormous amounts on creating and buying applications, marketing, and not having pan-India presence will lead to costs for roaming agreements between operators.

All this would result in a near-premium pricing of services which Indian customers will definitely not welcome and to top it all, as per Evalueserve currently only 3% of the subscribers in India have 3G enabled sets.

The future looks bleak for telecom operators and could prove to be a very expensive victory for the winners.

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