Exorbitant 3G & BWA Auctions to Drive Higher Broadband Costs for India Citizens

By BP Tiwari On June 10, 2010 · Leave a Comment

The unprecedented levels of the recent India 3G & BWA spectrum auctions will keep broadband access out of the reach of many India’s population while putting significant financial strain on service providers ability to deliver services. It is not my intention to reprimand the whole 3G and BWA auction that took place after repeated delays and embarrassments in India. However the high price of spectrum will make people of India the real defeaters. I am not surprised to read Mr. Mittal’s view in financial express where he commented “The bidding which is happening for broadband wireless access is wrong and the same was the case with regard to the 3G auctions which preceded it. The government may be in a celebratory mood with high revenues, but having bid so high, one thing is ensured: Tariffs for 3G services will remain high and unaffordable for large sections of people.” Mittal added that one year down the line, everyone would come to know who all are able to consolidate 3G services, having bid so high for just 5 MHz spectrum.

He said in particular that tariff in 3G and BWA would remain high and large section of common people would not be able to afford it. This is not a win-win situation for government and people of India. The spectrum for broadband access in particular reached exorbitantly high levels with only two spots made available for auction and the vision of delivering affordable broadband to the masses in India looks challenging.

What would be the impact of high spectrum prices in Mumbai and Delhi?

Assuming an operator brought Mumbai and Delhi spectrum at combined price close to US $ I Billion for BWA application. My analysis predicts that price of mobile broadband services will shoot up 1.5 to 2 times of current levels. This is not an encouraging situation of India Consumers.

Assuming BWA operator acquires 75 thousand subscribers every quarter in Mumbai and Delhi, which will take them to total of 3M at the end of Q4, 2014.

(Note : Projected subscribers in Mumbai and Delhi)
Using the current average price of Rs 905(US 18, Average price seen in Ev-Do) will make operators stand at negative Rs. 2000 Crores ( approx US$ 400 M) at end of five years. The exorbitantly high BWA spectrum cost would make impossible to offer services at current price levels in country.

(Price in Crores)
To compensate and make the business case viable, anticipate price to go up 1.5 to 2 times higher than current levels. Expect price of services to remain high in next 2-3 years as operators will try to recover the spectrum expenditures and other initial capex. With 1.5 times higher price operator has much better business case and in this scenario he will stand at cash flow positive of Rs.140 Crore (Approx 30 US$ M) .

(Price in Crores)

What to expect in Indian wireless broadband market?

To compensate and make the business case viable, anticipate mobile broadband service price to go up 1.5 to 2 times higher than current levels. Expect price of services to remain high in next 2-3 years as operators will try to recover the spectrum expenditures and other initial capex.
Expect coexistence of Enterprise services in the same BWA RAN to make business case more viable and attractive.
Expect low device prices to make entry cost as minimum as possible. Operators may subsidize devices or bundle low cost netbook to boost uptake of mobile broadband services. The low cost net tops from Intel and other variant may become popular.
Without doubt India will have tiered pricing and differential QoS based services to gain every bit out of the network.
The high cost of spectrum will require mass scale adoption among consumers. This is an interesting challenge of acquiring high volume subscribers, delivering true mobile broadband experience and remains competitive in offerings for BWA operators. I anticipate lot of innovation in technology, policy, charging, device and services.
If WiMAX , which has upper hand today becomes natural choice for operators than 16m will have a very important role to play in India broadband market. It’s all about acquiring extra subscriber per base station with limited amount spectrum while remain competitive.

Finally, we could have worked out a win-win situation for both consumers and operators, if enough spectrum would had been made available for auction with encouragement for new players to make broadband as affordable as possible for the people of India. I am sure we can learn from Japanese regulator who has made spectrum available for free with only condition of a nationwide deployment, benefiting people of Japan and assisting economy.

(Views expressed here are my own and by no means reflect my company’s opinion)