Sale of 3G Licences in India Set to Reap Rewards for Government

Sale of 3G Licences in India Set to Reap Rewards for Government

India is currently in the process of an online auction of 3G licences in which nine mobile operators are bidding for 71 3G slots in the country’s 22 regions. Bids have been aggressive and beyond what many experts believe represent the value of the licences. Proceeds from the sale are expected to reach $8 billion, according to the Government. India’s Department of Telecommunications is running the auction over the Internet.
Many observers think that the licences are overvalued and that the result of both this auction and the ongoing price war between operators for mobile telephone subscriptions in India will be consolidation in the industry, with the strongest operators buying out the weaker companies. India is the world’s fastest-growing mobile market with some 600 million subscribers, but competition on the market has meant that companies have been forced to reduce prices for subscriptions, which are the lowest in the world. As stated in a recent Credit Suisse report: “The resultant overcapacity has manifested in tariffs unrelated to economics.”
Lessons have obviously not been learned from the auction of 3G licences that took place in the UK in 2000, in which mobile operators ended up paying a total of £22.5 billion for licences, far beyond expectations. The technology did not come anywhere near to producing the returns expected, so in hindsight the prices paid were way too high. Furthermore, in a country which has such low subscription rates, it is doubtful whether Indians will be willing (or able) to buy 3G handsets, which can be expensive. But can the operators afford not to be engaged in the whole 3G revolution…?