Expensive 3G bids Justified as India set to be World’s Biggest Telecom market in 3 years


Any guess as to why those telecom companies went all out to conquer those prized 3G telephony spectrum? Read this…

Even as the exchequer mops-up a whooping Rs. 68000 crore, a feeling gradually sinks in that probably the government might have underestimated the real value of the scarce 3G spectrum resources. All thanks to the highly competitive and transparent bidding process, that led to a meaningful discovery of the real market-determined rates for the valuable 3G possession.

Here is some number crunching… As to why should telcos fought it out, until it got really dirty and expensive, to grab every possible scarce resource to ring in incremental revenues?

3G auction spectrum

According to a telecom report, India’s cellular subscriber base is set to more than double from about 580 million mobile phone users currently, to 1.159 billion by the end of 2013, making it the world’s largest mobile market; beating the forecast for China’s potential subscriber base at 1.106 billion mobile users until next 3 years.

The report further points out that the increased competition on the back of over-crowding of operators and prevalence of multi-SIM activity would keep fueling growth in India’s subscriber base, as against lower competition led by limited number of operators in China.

This would lead to higher subscriber penetration rate at 75% in India, as against 69% for that in China for the next one year. In fact, the study reveals that by the end of 2014, India’s subscription penetration will be 101%, which means there will be more mobile connections than actual number of people !

With the above forecasts related to such high growth in the subscriber base over next 3 years, it is but obvious that most of the incremental subscriber additions are likely to trickle in from the younger generation particularly enthused in accessing high-end data services such as e-commerce, increasingly popular social networking and most of all high speed broadband internet.

The advent of smart phones, in affordable category, is one more reason that would allow the next generation to access internet browsing on mobile phones. We’ve already discussed about low-cost mobile handsets a number of times in the past over here.

Under such circumstances, the bid amounts for the 3G airwaves which are for 20 years of spectrum control may not be as costly an affair as has been made out. Thus, the spectrum air waves were of critical significance for the telcos to conquer the prized possessions even if they came at relatively higher bid prices.

Probably, it would be more appropriate to say that with depressed scenario for voice call charges, it may work out well for the telcos to focus on customers with high ARPUs and increase their revenue stream from the high-end data and value added services at a premium to the subscribers in a bid to register enhanced earnings prospects. Currently, value added services contributes just 8-9% of telecom revenues of major operators.

The telcos that put their 3G-powered infrastructure to best use will ultimately triumph in this battle.

  1. […] days back we wrote an article quoting a survey that said India will have more than 100% teledensity by 2013 – means, more mobile connections than number of people living in India. Which puts the number of […]

  2. Altaf Rahman says

    @ Balaji on his Off topic comment :
    I accept the fact that agri sector’s productivity is low (per head per anum). However there is a thing called national security.

    Do you know Japan will not allow rice imports even though there is no space? What ever they produce they eat. They dont import rice. Why? Its called food security. In very critical sectors, a nation should not rely on imports.

    Suppose, if we calculate how much we spend on national defence and give national contract to Chinese firms for 50%, is it a profit? Is it a cost saving?

    There are certian things where we do not measure in profit loss terms. We have to bear them. Like our old parents. Just becasue they are old and non productive does not mean we disown them.

    I accept the facts mentioned. We have pinned the problem. Where I defer from Mr. Balaji Yadhav is in the solution.

    Here are some solutions :
    1) Take the case of Thailand. They have brought technology to villages in food processing industry. South East Asea food product market is dominated by Thais. In India 30% of grains, 40% vegitables and 50% fruits are spoiled before they reach people. Why cant we invest massiively in Cold storage ware houses, food grain silos and food processing in big way? This way we will be bringing technology to villages, saving national product from spoiling, providing employment to rural areas (thereby stalling migration to urban india) Presently the meaning of food processing in India is fruit juices and ice cream only. It has to expand to ready to eat product exports.
    2) Why cant we have good roads? In fact all cities with more than 5 lakh people (500+ cities) have to be connected by 6 lane roads, towns with 1-5 lak people (1,000+ towns) have to be connected by 4 lane roads. And smaller towns have to be connected with 2 lane roads. This will bring infra industry to rural India. Creating national assets (roads), providing business oppartunity to Industry, providing employment to rural India (as Mr. Balaji stated rural Indian work 60 days per anum so for the rest of 300 days they are free to work in infra industry)
    3. Information should reach farmers (internet, weather conditions, market prices for their produce) It will help farmers in choosing their crop, time of crop, time of harvest, time of sale.

    If we follow the above simple (but vast in resources) we will not have any devide between rural /urban India. Rural people will also have the same standard of life compared to urban India (TVs, roads, markets, industry).

    If people refuse to accept the above, please see rural USA. The people in rural areas have everything that urban USA has. In fact nobody can differentiate quality of life between rural and urban USA. Same will be valid for India too.

  3. Arpan Kumar Kar says

    Nice analysis of the Indian telecom sector. what worries me is that the ARPU is actually decreasing in India…and will these moves be fruitful for the company as much as expected?

  4. balaji yadhav says

    The bidding prices of 3G are indeed justified. If India can really reach 101% penetration rate in just 4 years time,it would be amazing with more new players like Uninor and other cropping up it can become a reality.Hopefully say internet subscribers also increases along with the 3G subscription.Then we will have a well connected and informed India which is essential for any country especially for the rapidly growing service sector.

    Off topic – I would like to say that India should forget about the agricultural sector providing jobs in the future cause there are already 600 million people in agri but working on an average only 60 days a year even if we have the third green revolution doubling our agri output we will still have work only upto 120 days a year thats like one third of a year.So the Govt should focus more on Rapid urbanisation of the villages in India so they would divert from a farm economy to a services oriented economy.Cause agri simply cannot sustain this huge unemployed,uneducated population but the services can.

    1. Viral says

      Hello Balaji Yadav,

      I, indeed, feel that the costs of 3G services would ultimately be shared by both telcos (by providing cost competitive services) and users (by paying a little extra for this elite service).

      As the spectrum licenses are for 20 years, the telcos would be in no hurry to cash in from the spectrum services. They can provide cost-competitive service with stakes spread over as long duration of time.

      Coming to your off-topic discussion, I almost agree with you now that the agriculture constitutes a very small share of India’s GDP.

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