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Apr. 10, 2010

After several weeks of postponements and of public inter-ministerial bickering that have been going on for months requiring the intervention of a special task force of senior ministers and a couple of nasty lawsuits, India has finally begun its long awaited public auction of wireless spectrum for 3rd generation mobile telephony.

The auction will also be one of spectrum for broadband wireless access. The problem is, the number of bidders far exceed the available wireless spectrum in all of India and that is a really big problem facing a country which relies mostly on mobile service rather than traditional land lines.

First, the implementation of the auction process itself is also likely to go against irrational exuberance on the part of the many wireless bidders. India's mobile spectrum auction process is designed to deter predatory bidding.

Only the auctioneer is allowed to raise the bids – and that, too, in a pre-determined manner, using a publicly stated formula – and never the bidding players.

Secondly, the process is also designed to thwart speculation. The market players must first make the full payment for their bids within ten days of winning the spectrum – or risk losing their millions in earnest deposits necessary for participation in the auctions.

It's now safe to speculate that the final bidding price will likely be driven by the “Nth plus 1” player – that is, by the final bidder in the auction. Some wireless industry observers think that's not fair to all market participants, but others disagree.

The final outcome of all the spectrum auctions will likely trigger a shakeout in the very crowded Indian telecom market. Some observers say that the bidding process is likely to be fairly long drawn and extremely aggressive in nature.

But the aggressiveness is also likely to be tempered by some market realities that still remain in India and by the lessons of history.

Overall, India is predominantly a prepaid, voice-oriented market with still unclear data revenue prospects. The culture of mobile data consumption will likely take some time to set in and leading mobile operators may well use the 3G spectrum to address the capacity crunch they face on their current 2G networks, especially in key metropolitan centers.

There are hundreds of thousands of new mobile subscribers coming on to the networks in India, both old and new.

One can only assume that wireless players in India will have learned from the mistakes of some of their western counterparts who, failing to recognize the many challenges of monetizing 3G networks and services, had gone somewhat overboard in their spectrum allocation bids earlier in 2001, 2002 and 2003.

India is actually divided into twenty-two mobile phone operating sectors, commonly referred to as "mobile circles". But not all circles are equal - they are actually segmented into A, B and C categories, depending on population and by revenue prospects.

Each of the country's four largest metropolitan cities: Delhi, Mumbai, Kolkata and Chennai are designated as an A circle, as are a few states in India.

Each of the twenty-two circles are simultaneously up for bids in the current wireless spectrum auction.

The auction is designed as a multi-round online process in which the auctioneers – NM Rothschild & Sons and dot.econ – present bids in an ascending order.

The bidders can accept or decline the auctioneer's proposed price, but cannot offer their own bids. Each player must bid in a given round to preserve the right to bid in a subsequent round.

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Source: IWN.