3G auction hots up, causes service rate worries

On the 31st day of auction on Saturday, bids for one set of nationwide 3G spectrum licences touched Rs 15,814 crore. This indicates the government could earn a revenue of about Rs 63,900 crore from the auction, as against the estimated Rs 35,000 crore, from both 3G and Broadband Wireless Application biddings. The BWA bidding is yet to begin.

With the auction heating up, the question being raised is how the companies that get the licences are going to work out their market rate.

The companies had initially claimed that they would charge only on par with the prevailing 2G tariffs for calls and SMS.

Market analysts feel the constraints of the Indian market will discourage the companies from fixing a high charge for the services. Calls still constitutes 92 per cent of telecom revenues and SMS, just less than five per cent.

And 3G will most likely be used for for calls. Other applications, like downloading video content, interest access, will be limited to a few big cities.

State-run BSNL and MTNL are the only two companies offering the services in 354 cities, except in Delhi and in Mumbai. Recently, BSNLChairman Kuldeep Goyal announced that the company would provide services at affordable prices to win a large customer base.
So, private companies will be able to sustain a customer base only if they provide calls and SMS services at affordable rates.

“The Indian customer being highly cost sensitive, high price for new services means losing customers,” a senior official in the Department of Telecommunication told Deccan Herald.

Leading mobile operators, including Bharti Airtel, Reliance Communications, the Tatas, and Vodafone are participating in the bidding that began on April 9.

With the licence, the companies will be able to offer advanced features such as offer high-speed Internet, data exchange, video-on-demand on mobile phones.