Will connectivity remain cheap in India?

The auctions of 3G and broadband wireless access (BWA) spectrum have come as a US$21.6 billion (INR 1000 billion) bonanza for the Indian government.

The auctions of 3G and broadband wireless access (BWA) spectrum have come as a US$21.6 billion (INR 1000 billion) bonanza for the Indian government. But will the auctions spell bonanza for the Indian consumers?

Let's go down history to cull out the answer. Over the last 12 years, the Indian economy has largely grown on the back of a strong telecommunications network. The road network and power situation continue to be poor. Same is the case with the ports. And our airports have only recently begun to get a makeover. In other words, India's infrastructural backbone continues to be in a bad shape. If not for telecom, we could not have come this far.

Tariffs have played a large role in the growth of this sector. For the last seven to eight years, telecom tariffs have constantly dipped, making tariffs in India the lowest in the world. As a result, there are over 600 million phone connections and mobile phones have penetrated the remotest villages of India.

When it comes to 3G, one wonders whether the high cost of spectrum will translate into higher tariffs or not. In the past, too, spectrum hasn't come cheap. But this time on, spectrum prices seem abnormally high.

This means when 3G is launched--hopefully by October or November this year in the metros--it could be frightfully expensive and only within the reach of the rich.

3G may see competition from BWA, too. The pan-India BWA licence went for a massive US$2.8 billion (INR 128.5 billion). Reports point out that broadband may not be the only objective of players that participated in the BWA auction.

With time, regulations may change, allowing voice over broadband wireless. As a result, BWA could compete with mobile telephony.

According to news reports, BWA spectrum will be allotted earlier--perhaps in July. This will give operators that won BWA spectrum a two-month head start over 3G players.

Moreover, 20MHz spectrum was offered for BWA, as opposed to 5 MHz for 3G. So there is an opportunity for operators to use BWA spectrum for other purposes. Experts also believe using BWA spectrum for voice can lead to more efficient use of the spectrum.

But, while only 1 percent of the population in India has access to broadband, the penetration of mobile phones has grown to over 55 percent (and continues to grow at a fast clip). Therefore, on the face of it, it seems like BWA players will have a tough time selling broadband, unless they venture into voice.

Currently, regulation forbids them from doing so. But with a large player like Reliance Industries entering the fray (by picking up 95 percent stake in Infotel Broadband--the only company that bagged the pan-India BWA licence), it's not farfetched to imagine that regulation may change and voice maybe offered through technologies like WiMax.

Incidentally, WiMax is a 4G service and a lot more efficient than 3G.

Coming back to 3G--pricing 3G high won't fetch companies the desired volumes. This means that in order to recover their investments in the spectrum, telecom players will have to take 3G to the masses. And that can only happen through low tariffs.

Will that not affect the financial health of our telecom companies? Will India continue to have the cheapest tariffs in the world? And will BWA pose a serious threat to mobile telephony?

These are questions only time can answer. For now, it seems like the Indian telecom scenario is poised to witness a sea-change. In the interest of India, let's hope that telecommunications remains a buoyant sector. Because even today, India's growth largely depends on this one sector.