Monday, February 01, 2010

Unexpected Benefits from 3 G Delay

Vasu Reddy from Chicago

The continued delay in auctioning 3 G spectrum has not slowed the mobile subscriber growth in India. The month to month growth rates are amazingly stable and remain robust. By observing the debates on policy, planning, finance, legal and general issues of 3 G licenses, and in an environment that finds ways to delay any policy decisions, it is quite likely there will be a further delay in the auctions. We have newer reason today than we had a few weeks ago, or for last several months and years.

Subscriber growth rates being constant simply shows that the existing operators with the already allocated spectrum have enough capacity to maintain the robust growth, and the delay in 3 G is not causing any reduction in loading new mobile subscribers. It’s quite a valid observation as to the value of the existing networks having the ability to continue with the growth in user base.

By assuming that at least 2 new entrants will come into the foray with 3 G licenses, the already operating dozen or so networks in each region will only get more competition for the same subscribers. The delays pretty much limit the growth of operators in the short run, and might also allow for some consolidation in the market place. There is no doubt that we don’t need a dozen operators in each market. Consolidation will further improve coverage, network quality along with better usage of spectrum. All of them benefits to the customer, DOT and also the markets.

MTNL and BSNL have had 3 G airwaves for about a year now, and have not made any headway in loading up 3 G subscribers. Accept making noises of 3 G services both these operators have not benefitted by having the spectrum. Its time to look at why MTNL and BSNL are not attracting 3 G customers, if there is such a huge demand for the services? While the policy and other issues are being sorted out by the powers in Delhi, the failure to lure 3 G customers by MTNL and BSNL can be understood to develop the appropriate business and engineering plans to develop the 3 G customer acceptance. There is a perhaps simple reason such as services, value addition, cost, handsets, coverage, speed and the entire regular attributes that a particular customer expects to purchase the service, and may be at this time they do not exist in the Indian market, or the customer simply is not ready to upgrade to the next generation mobile services.

MTNL and BSNL can use the time left as 3 G monopolies to shore up their advantages to develop best practices and solutions to attract customers, and with the already established network and perhaps another year of monopoly in the 3 G arena, they can makeup for the losses in the 2 G and fixed line networks. The government should allow them to act quickly and decisively with 3 G planning and execution (unlike the decision making with 2 G sourcing which is at the speed of a snail) to capture the first in market advantages that certainly exist in the Indian mobile market.

MTNL and BSNL also will not have to pay the 3 G spectrum fees until such time the government. This certainly helps in keeping the cash with them and utilizing the resources for another year or so. This helps them with the balance sheet and also leverage for some more time.

The delays are unwarranted and purely because of poor planning, and too much tinkering by the policy makers. As of now, the proposed auctions have so many difficulties and issues, it may be best to just scrap the whole exercise and start fresh. The unexpected (perceived) benefits do not support the delay in 3 G auctions and launching these services. Albeit it illogical not to take immediate action on 3 G (while the rest of the developed markets might be looking at 4 G and beyond), there is some truth to the benefits of the delays to the existing networks, which have yet to recover costs of deployment.

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