Emerging Markets Communications Strategies

Analyzes the issues facing existing and new players who are looking for a share of growing mobile markets in over 30 developing countries, including the developing regions of Asia and Africa.

November 14, 2012 16:10 telliott

Yeah, that’s what I thought: not a lot of hands in the air.

The auction, which opened on Monday 12 November – only to pause for the Diwali holiday on Tuesday – is putting up for bid 2G spectrum licenses that were invalidated earlier this year by the Supreme Court, which ruled that their original issuance in 2008 was “arbitrary and unconstitutional.” (So much so that the telecoms minister at the time, Andimuthu Raja, was arrested and jailed.)

Cancelling the licenses without compensation left a number of major international players, including Telenor, Etisalat, and Sistema with unpleasant alternatives: exit the market or pay again for something they thought they had already purchased. (See “Post Supreme Court verdict, it’s Catch 22 situation for foreign operators in India” and “Telenor, Etisalat, Sistema and India's License Debacle: A Harsh Reminder About Risk and Return “)

But the assumption was that at least the second auction of this 2G spectrum would be priced reasonably.

Well actually, not so much.

The Department of Telecoms has set the reserve price at roughly USD 2.6 billion for 5 MHz nationally. As of the end of Monday’s bidding, bids had crawled up to just over USD 300 million, and there were no bids in some circles, including Delhi and Mumbai.

There are wrinkles and subtleties to the story, no doubt, but one inescapable conclusion is that severe damage has been done to the brand image, if you will, of telecoms in India. However much the government may wish to reap large sums of money from telecoms providers, those providers are surely looking at years of contradictory and dilatory regulation and wondering just how much agony is worth enduring to compete in what is, at the end of the day, a very challenging low ARPU market. 

February 2, 2012 18:25 rgupta

The Supreme Court of India today cancelled 122 2G licenses that were granted in 2008 mostly to new players but also to Idea Cellular and Tata Teleservices. The court has given four months to the government to auction these licenses and till then the existing operators would continue to operate, so nothing will happen to the existing subscriber base. However, it would be a major setback for the foreign operators like Etisalat and Telenor, which have made substantial investment in passive infrastructure and subscriber acquisition. For a discussion of Telenor’s entry into India, see “Telenor's India venture: Is it a misadventure?

It will be very difficult for all the operators whose licenses have been cancelled to participate in the fresh auction. Most of these companies don’t have the financial muscle to participate in the auction as any fresh auction would cost them around US$ 1-2 billion. (This is a conservative estimate as for 3G licenses in 14 circles Bharti paid around US$ 3 billion)  Even those who would participate and win after paying such a huge price would find it difficult to compete with big players like Bharti Airtel and Vodafone. So in a nutshell the court verdict would eventually result in a few operators in each of the circles; tariffs will no longer be low as there won’t be any player which can afford to play the game based on cheap tariffs after paying huge auction money.

The government and the regulator are working on an exit policy for the operators but this would not solve the problem of the foreign players. Foreign players entered Indian market with the intention to compete in the Indian market and were here to stay and expand their businesses. The court verdict has put them in a Catch 22 situation. If they decide to exit, they will lose out a lot in terms of subscriber base and investment made, but if they don’t , they will have to shell out huge amounts to get these licenses back again. Essentially this would mean going back to the drawing board and chalking out a new strategy to get returns on the investments. At present the focus of these players is using cheaper tariffs to add new subscribers in smaller towns and villages, but the ROI demands of new license fees mean they would have to focus on high ARPU customers even though they don’t have 3G licenses, which is definitely an uphill task. 

- Rahul Gupta

See also, “Low Income Indian Mobile User Survey Analysis: Basic Services”