Reverse 3G Effect

The 3G telecom auction was held in India in 2010 and the bidding process for it can be described as a highly competitive one. The companies whose bids were successful received the right to sell spectrum during September that year. Tata Docomo was the first privately owned service provider to start 3G services in the country.

The Indian government generated revenue amounting to approximately INR 67,719 crore from the auction. The auction for the broadband wireless spectrum helped the Indian government earn 38,500 crore rupees. The Indian government got 106,219 crore rupees from both the auctions combined.

Some of the major telecommunications companies of India participated in the auction:

• Bharti Airtel
• S Tel
• Aircel
• Tata Teleservices
• Idea Cellular
• Vodafone Essar
• Reliance Communications

MTNL and BSNL, state owned telecom service providers, were also awarded spectrum but they had not taken part in the auction. BSNL is supposed to pay INR 10,187 crore to the national government for its spectrum rights in the 20 circles where it is operating. MTNL’s 3G services are available in the Mumbai and Delhi circles.

The central government had given both these operators a major advantage in this regard by providing them the necessary 3G spectrum but on the condition that they will have to pay an amount that was equal to the highest bidding amount for that particular circle.

The auction happened for 34 days and saw 183 rounds of competitive bidding. With a price of INR 3316.94 crore for every operator Delhi was the most sought after circle followed by Mumbai. The top 5 was made up of Karnataka, Andhra Pradesh, and Tamil Nadu. Together the five circles took up 65.56 percent of the bids.

The various operators and the circles where they placed bids for spectrum rights can be mentioned as below:

• Vodafone: Delhi, Mumbai, Maharashtra and Goa, Gujarat, Tamil Nadu, Kolkata, Haryana, Uttar Pradesh (East), West Bengal
• Bharti Airtel: Delhi, Mumbai, Andhra Pradesh, Karnataka, Tamil Nadu, Uttar Pradesh (West), Rajasthan, West Bengal, Himachal Pradesh, Bihar, Assam, North East, and Jammu and Kashmir
• Reliance: Delhi, Mumbai, Kolkata, Punjab, Rajasthan, Madhya Pradesh, West Bengal, Himachal Pradesh, Bihar, Orissa, Assam, North East, and Jammu and Kashmir
• Tata: Maharashtra and Goa, Gujarat, Karnataka, Kerala, Punjab, Haryana, Uttar Pradesh (West), Rajasthan, Madhya Pradesh,
• Idea: Maharashtra and Goa, Gujarat, Andhra Pradesh, Kerala, Punjab, Haryana, Uttar Pradesh (East), Uttar Pradesh (West), Madhya Pradesh, Himachal Pradesh, and Jammu and Kashmir
• Aircel: Andhra Pradesh, Karnataka, Tamil Nadu, Kolkata, Kerala, Punjab, Uttar Pradesh (East), West Bengal, Bihar, Orissa, Assam, North East, and Jammu and Kashmir
• S Tel: Himachal Pradesh, Bihar, and Orissa

3G Auction – List of winners in different circles

Scrapping of 2G licenses

The Supreme Court has during February 2012 cancelled the licenses of 122 2G service providers across India and this has put the crores invested by some of these companies in the 3G spectrum in front of some questions as well. The seven winners of 3G auctions of 2011 have paid the Indian government almost 51 thousand crores in 2011 but now with the cancellation of licenses some operators might end up with their 3G services only.

The Supreme Court has stated in its order that the new auctions for 2G spectrum will happen over a 4 month period. The auction will be an open one this time around. Telecom industry experts are of the opinion that the companies, whose licenses have been scrapped, will be able to provide only 3G services if it is a commercially viable proposition.

A lot also depends on whether these companies will be able to get back the cancelled licenses even without participating in the auctions. It is possible that laws could be changed to accommodate licenses without spectrums and there is enough evidence for the same. There is also a possibility that companies that have been successful in the 3G auction will be able to operate without the 2G licenses.

The experts have also stated that if the organizations can keep operating like that, they will be aiming at the up-market customers who are keener on availing 3G services than 2G. The 122 licenses that have been annulled by the Supreme Court were allotted when A Raja was the Union Telecommunications Minister and the reason given for cancellation is the perceived illegality of the way they were allocated.

The companies that have been affected as a result of this are:

• Uninor – a joint venture of Unitech and Telenor
• Swan Etisalat
• Tata Docomo
• Loop Telecom
• Idea Cellular
• Videocon
• MTS – Shyam Sistema

From the above mentioned list, Tata Docomo and Idea Cellular have been successful in winning 3G spectrum rights in several circles. Reliance Communications and Aircel Cellular too have won in some circles but the Supreme Court has spared them as their licenses were issued prior to A Raja’s term.

Companies looking to exit 2G market

Ajay Chandra, the managing director of Unitech, has stated that after their 2G license was canceled they will aim to refocus on real estate, which is their core competence. He has also stated that the company will not be looking to bid again when the auctions start afresh.

Chandra has stated that the decision to enter the market was a major mistake. The company’s real estate operations have suffered in the last couple of years after the 2G scam came into public view with reducing sales of offices and homes across India.

However, now the company is doing well in its project execution and has also started to reduce its debt. At present its debt stands at INR 5400 crores compared to the 10,900 crores in 2008 – this has been their highest debt ever.

He has said it will be difficult to come out of the 2G situation because of the amount that has been invested into Uninor. He has lamented the fact that their real estate sales could have been better if the 2G affair had not taken place. High interest rates have also affected their fortunes in this domain and the organization is hopeful things will be better once the rates are brought down.

Unitech had put in 150 million dollars in Uninor and will have to face significant losses if the investment was reduced to zilch. Chandra says that they do not expect the situation to get any worse than what it is right now with the cancellation of their licenses.

It was in 2007 that the organization had opted to enter the telecom market and made applications for pan Indian licenses. It got the licenses in 2009 and went on to sell shares worth 6,100 crore of Unitech Wireless to Telenor, who later on put in an additional amount of 8000 crore rupees.

Some other companies that are looking to get off from this market may be mentioned as below:

• S Tel
• Loop Telecom
• Bahrain Telecom

Future of India telecom industry

The MD and CEO of Bharti Enterprises, Akhil Gupta, has stated that even though the national telecom industry is facing some crises, its future is good and safe. He has stated that the problems have resulted from the actions of the industry, government, judiciary, and the regulatory authorities.

He has stated that millions of dollars were being spent on a yearly basis to come up with new technology, equipment, and research and the basic purpose of all this was to shift to the next generation in technology. Gupta has predicted that soon, 3G technology will take over from the existing 2G platforms. He has also asked the telecom organizations functioning in India to take a more proactive approach in this regard.

According to him, the Indian population is yet to get properly acquainted with the way optic fiber is used. At present, India has more than a billion internet users and many steps are being taken to increase its use in the rural areas as well. He has also remarked that the potential workforce of the industry should also look outside India for ideas and development.

Possible effect of 2G license cancellation

It is expected following the Supreme Court’s decision to cancel 122 2G licenses almost 79 million subscribers might need to change their connections. This decision has also affected the stock market performance of the telecom companies, especially ones whose licenses were revoked. Shares of Videocon and Unitech have suffered as a result of the decision but Bharti Airtel has performed well.

The subscribers are set to be affected in a big way – Unitech has the biggest customer base of 36.31 million among the ones whose licenses have been canceled. Almost 17.15 million Idea customers and 15 million Sistema Shyam customers are set to be affected as a result of this decision.

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