I remember my grandfather vividly telling me how around four decades ago a landline was a luxury. Families had to wait years in line to get one connection. He also recounts how an STD call was connected by a middle man and the people had to wait for hours to be able to talk to each other. But today, the very landline which was a matter of pride for all its achievers and dream for those who did not have it, is being returned by the same people over the features and facilities of the cost effective mobile phones. The mobile phone industry is the only infrastructure sector in India which has been growing by leaps and bounds.
The recent 3rd generation (3G) spectrum auction totaled a whooping Rs 67710 crore, much against the government expected Rs. 35000 crore. With its services starting post September 2010, a new era awaits the mobile users with faster and robust internet and better access to data services including E-Commerce, Telemedicine and Social Networking.
The question arises, why did 3G auction reach those heights? Is it going to be that profitable? Perhaps the most potent reason of 3G going beyond anyone’s estimation is the hunger to add more subscribers for which the spectrum is unavailable in 2G. Also the excitement among the future subscribers, the high expected profits have been responsible for the skyrocketing bid prices.
With the Finance Minister, Pranab Mukherjee and Telecom Minister, A Raja smiling, India’s fiscal deficit is expected to decrease by 1% of the GDP( from 5.5% to 4.5%) as a result of the huge influx of money into the government. treasury. Perhaps, we have achieved what the European countries are struggling for today. The stock market seemed to have accepted this development with exuberance with soaring Sensex and the Foreign Institutional Investment (FII) which got pulled out in May, saw a return soon after the 3 G and BWA (Broadband Wireless Access) bid.
With this 3G buzz, Pyramid Research of Cambridge Mass, forecasted India’s mobile penetration rate at 80% by 2014. Even the Average Revenue per User (ARPU) is expected to rise from Rs 100 to Rs 300-400. V Ramnth, Head , operator channel for Nokia predicts Indian markets to have 395 million 3G handsets by 2013 against current 20 million who possess 3G ennobled handsets today.
With World Bank extremely positive with the growth effect of Broadband in developing Countries, it can be extremely beneficial in spreading services to distant villages where it can prove to be more efficient means. Also, the bids for 3G spectrum would help reducing Public Borrowings and free up money for Private Investment, reducing the “crowding out effect”.
Yet among such euphoria, huge clouds of skepticism surround this big deal. The concept of “winner’s curse” might come true in this case wherein the successful bidders have to pay whooping amounts for their licenses. This will put pressure upon these companies to attract as many customers as they can, giving rise to intense price competition with increasing pressure to provide high end services thus, reducing margins and further investments.
Also, many like Marketing Professor Raghuram Iyengar are worried and praying that UK’s 3G auction disaster in 2000 may not get replicated in our country. But here we have a silver lining with the availability of the necessary infrastructure which UK did not have a decade ago.
With a lot of positivity in air, worries surround the marginal players are going out of their way to secure their positions. Even the net debt levels for most of the telecoms have gone up by leaps and bounds. According to Swaminathan Aiyar, “the lower Government borrowings requirement will be fully offset by the higher borrowing requirements of the telecom companies. No bank funds will be freed for productive uses of Private Sector.” Questions have also been raised about the designs of the 3G auction and the lack of sustainability in the increase of the revenue.
But amidst all this hullaballoo lies immense challenge in front of the telecoms that shall be responsible in turning the tides. Telecoms will have to strongly rise from the short term liquidity crunch they face. Infrastructure and equipment standards need to be broadened. Also the intense competition to magnet the subscribers from rivals will be the most potent challenge.
With the Government emerging as the invincible winner, effectiveness in reach of the 3G spectrum to the consumers seems to be the biggest issue.
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