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June 4, 2010

Overall, the wireless spectrum auction currently under way in India isn't going on as planned. In fact, some observers say it's almost a complete disaster, and there dosen't appear to be much coordination in the effort.

By the time the auction ends in a few weeks, a wireless spectrum slot in India could easily end up costing as much or even more than a 3G spectrum slot because the broadband wireless access spectrum holds tremendous significance for the future of market players. Others disagree.

After more than a week and no less than 62 rounds of bidding, the price for a pan-India spectrum slot – across all 22 operating areas was almost 5 times the reserved base price of INR 1750 crores, or roughly US $390 million.

In comparison, the price of a pan-India spectrum slot after eight days and 46 rounds of bidding was only 1.7 times the reserved price of $780 million.

In the case of 3G, there were three paired spectrum slots and nine contenders, while for BWA, there are two unpaired spectrum blocks and 11 contenders. Equally significant, one 3G slot consisted of 2 X 5 megahertz spectrum in 2.1 GHz band, while one BWA slot consists of 20 megahertz spectrum in 2.3 GHz band.

Confused? You're not alone...

At the end of eight days of bidding, the price of a pan-India spectrum slot was considerably higher in absolute dollar amounts than the price of a pan-India 3G slot – $1.91 billion, as compared to $1.35B for the 3G spectrum slot.

The fact that there are more contenders and less spectrum slots only partly explains the intensity of bidding which will most likely continue to drive up prices. Some think it will get worse before it gets better.

But there are other market forces and competitive dynamics that could also serve to fuel the bidding even more. Some of these would be the outright scarcity of the wireless spectrum, the imminent deployment of mobile number portability and the struggle between TD-LTE and WiMAX technologies.

Mobile number portability has been scheduled and rescheduled several times, not just in this current spectrum auction but also over the past 6 to 8 months, and there doesn't appear to be a quick fix anytime soon.

It was originally scheduled to be implemented in large cities and category A areas by Dec. 31, 2009, and across the rest of the country by March 20, 2010. Clearly, that didn't happen.

After being first pushed back by three months to March 31, the deadlines were revised again. The current June 30 deadline will also likely be deferred as well. State-owned incumbents BSNL and MTNL have yet to install and test the network gateways necessary for an MNP implementation, although vendors Telcordia and Syniverse are ready with the solution.

By the way, these state-owned incumbents are also likely to see the highest churn rates following an MNP implementation.

The necessary condition for all that is mobile and wireless is wireless spectrum. As much as the Internet needs IP addresses to work, wireless does not lend itself to halfway measures and needs spectrum to work. A mobile service operator either has it and, therefore, has a future – or he does not, and has no future at all.

In India, wireless spectrum is a very serious issue and also very complex-- more than some believe. While the number of Indian mobile subscribers may be growing at a clipped rate of almost 17 million in April 2010 alone, Indian mobile operators are among the most spectrum starved players in the world, operating at between one-third and one-half of the global average. And the situation will probably get worse before it gets better.

Most mobile operators currently face a huge capacity crunch in most markets, even with respect to voice services. Dropped calls are not an uncommon phenomenon, especially in the metropolitan areas.

Making matters even worse, one must remember that no mobile operator was able to garner a nationwide spectrum slot in the recently concluded 3G auctions. Most settled for what they perceived as markets of strategic interest – either for future growth or for alleviating the current spectrum crunch.

Six of the key mobile service operators who acquired a bit of 3G spectrum are also participating in the so-called BWA auction as well. While some will be looking to broaden their geographic footprints, others will be seeking to strengthen their wireless spectrum positions in areas with most opportunity.

Given their differential revenue potential, some of the key ares are seeing greater demand than some other areas.

While they will surely deploy 3G networks and services quickly, they will also probably seek to use the newly-found 3G capacity to shore up their voice revenue streams.

The allocation of 3G spectrum will most likely translate into a new range of data and voice services pretty quickly. Wireless users might eventually learn that, driven by the intentional hype of paid commentators as by their very poor understanding of market and technology realities, some excitement might have been misplaced from the very beginning, and this is only starting to trickle down, all but so slowly.

Some observers think that the situation will worsen in the next few months as well.

The wireless 3G spectrum auctioned by the government of India isn't going to cut it, not by a long shot.

To remain viable, wireless carriers and service operators will need more spectrum, and lots of it. Given the absence of a clear spectrum roadmap, it only makes sense that mobile operators bid intensely to get their hands on the larger chunck of the spectrum that is available in India, or else die of a slow but agonizing death.

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Source: IND&N.