2G auction delay hits India's telecom market

The lack of urgency within India's government to resolve the allocation of 2G spectrum issue by fixing the reserve pricing is a blow to its credibility and will hamper the development of the local telecommunications industry, state analysts.

Since February this year, when India's Supreme Court canceled 122 2G licenses due to alleged graft during A Raja's time as telecom minister, the Empowered Group of Ministers (EGoM) led by Finance Minister Pranab Mukherjee has failed to determine how the auction would proceed.

The Supreme Court had tasked the local telecom regulator, the Telecom Regulatory Authority of India (TRAI), to recommend how the auction should be organized and the reserve pricing for spectrum, and had set Jun. 2 as the auction date. However, the deadline was later pushed back to Aug. 31, yet the EGoM has not decided on issues around reserve price, eligibility of buyers and spectrum bands to be sold off.

These developments prompted Kamlesh Bhatia, research director at Gartner, to suggest that the ministers will petition the court for another extension.

Another observer, Romal Shetty, said the indecisiveness of the EGoM is hurting the government's image and standing. The executive director and head of telecom at KPMG said: "The market has taken a hit in terms of credibility in policymaking."

He added that telecom licenses can be seen as a government document and foreign investors are brought into the country to develop the industry based on these licenses, so there is a pressing need to resolve the spectrum licensing issues.

The government needs to provide clarity on policy matters such as reserve pricing before these investors can decide how to proceed and whether they want to participate in the auction, he said. If the auctions do not take place on the stated data, then it does not augur well for the telecom industry in India.

"The telecom industry is a hugely outsourced one. It hires call centers, IT solutions providers, network providers, etc. Everyone has made huge investments, which stands affected," Shetty said.

Some of the new telecom entrants in the India market may even exit the scene totally pending the final auction guidelines, added Praveen Bhadada, director of market expansion at Zinnov Management Consulting.

High base price to impact tariffs
TRAI had earlier recommended a base price range between INR 36.2 million (US$646,848) and INR 144.8 million (US$2.6 million) per megahertz (MHz) of airwaves. The government stands to gain INR 7,000 billion (US$25 billion) by 2014 through the spectrum license auctions, but telcos have opposed the recommendations.

Mohammad Chowdhury, leader of telecom at PwC India, said the company's assessment puts the recommended base price impact on calling cost per minute in the range of INR 0.24 and INR 0.28. In bigger cities, the additional cost can go up by INR 0.90.

"We believe that operators are unlikely to have further capacity to absorb such cost increases. Therefore, we may see significant tariff increases should TRAI's reserve price be accepted by the government, and operators' enthusiasm to participate in the auction will dampen," Chowdhury said.

Long-term detriments to innovation
Chris Perera, Asia-Pacific senior director of spectrum policy and regulatory affairs at GSMA, noted that telecom is an innovation-driven industry, and the trade body fears that a high base price will curtail investments in developing India's mobile infrastructure.

Furthermore, the higher costs might prevent operators from rolling out services to the remote parts of the country, Perera noted.

Gartner's Bhatia agreed, saying: "If the operators' money is sapped due to high reserve prices, you will see very little innovation in the market."

The GSMA estimates that India will become the second-largest mobile broadband market globally--after China--with 367 million connections by 2016.

Chowdhury said growth has slowed in the past two years though, and a return to past growth levels will require the uptake of new services such as data. And his cannot be done with supportive policies.

"All industry players would like normalcy to return to the policy environment for continued industry growth," he said.

Swati Prasad is a freelance IT writer based in India.