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Sunday, February 7, 2010

3G auctions… dragging on with unplanned benefits!

Preface: After government of India has announced auction of 3G spectrums, Tom Friedman is contemplating changing title of his now famous book describing the flat world; the flat world might just be tilting towards this part of the world. Money is flowing into India from all parts of the world in different flavors viz. climate change, BRIC, Growing economies, nuclear & space research and area where I passionately invest my career; Telecom. Large telecom service providers across the world are flocking an already crowded 2G space; existing telecom vendors are announcing more R&D spending in this part of the world. We are witnessing a new wave of strategic M&A deals in pipeline involving big names viz. Airtel, Reliance, Vodafone, MTN, Etisalat, BSNL & Zain. All players have trust to invest and wait in India where judiciary has set strong precedence over everything else… as in a respected democracy. Recently this topic has gained sufficient political mileage when finance minster announced that his budget was depending on revenues from 3G auctions towards solving fiscal deficit.

Dear readers - thanks to your comments via email on my previous article related to 3G topic You can follow this topic on my blog to completion in next months…

The 3G auctions is dragging on endlessly. keeping all of us on our toes. It is already late for finance minster to realize any revenue during this financial year to bridge country’s fiscal deficit. 3G auctions were announced first in 2007 and auction dates have been missed on several occasions. Any further delay is likely to impact credibility of government. The auction that will follow is unlikely to raise as much money as was initially anticipated. An auction held in shadow of financial compulsion is likely to yield sub-optimal result. The newer service providers got new 2G licenses in 2008 (thanks to largesse of Raja) at lower prices and this delay of auctions is helping them stabilize operations and gain momentum. The older players aren’t getting new 2G spectrum and are facing severe voice quality issues trying to serve additional subscribers within existing spectrum. While government doesn’t want to be seen as helping newer players, there is an unplanned argument in favor of this postponement. The ever heating competition in service provider space is bringing question marks over commercial viability of to-be-auctioned spectrum. First-time mobile users are buying SIM cards from new players who offer better voice quality with their yet-unclogged networks. at cheaper price! Telecom and defense ministries are now fighting over a simple question – who owns the spectrum?! Government needs to take positive steps to resolve such basic questions to be able to resolve larger issues. The new argument from defense ministry that they own the spectrum – will continue to use it until an alternative is found – will take several years, should not be forced to vacate existing spectrum is not a convincing argument. Since all spectrum allocations will be done by Wireless Planning Commission which reports to telecom ministry, it is obvious that final custodian of spectrum is telecom ministry. A new view is that telecom ministry is “custodian” of spectrum and in defense interests, will be prioritized for defense purpose. All these arguments must be brainstormed and government must resolve them transparently before taking steps towards starting the auction.

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