Indian 3G and WiMAX auctions get green light for new year
At last, the Indian government has given the green light to the much delayed auction of 3G and WiMAX licenses, and the process should start this week and be completed by late February. The process will be overseen by NM Rothschild and Sons and is likely to spark a wave of capex investment across the subcontinent, and almost certainly create the largest WiMAX market in the world within two years.
The deadline for applications is December 31, and the WiMAX auction will begin on January 16 2009, and the 3G sale on February 9, a slight change from the previous plan to conduct both sales simultaneously. The Department of Telecom (DoT) is planning to auction five blocks of spectrum for 3G and four for WiMAX in each telecoms region or 'circle'. At least two CDMA operators will be able to offer 3G services in each license area, a relief to this community, which was concerned it would be excluded or that its licenses would be awarded later than those to GSM operators. Spectrum for EV-DO data services will be auctioned in the 450MHz and 800MHz bands, and eventually in the 1.9GHz band.
The deadline for applications is December 31, and the WiMAX auction will begin on January 16 2009, and the 3G sale on February 9, a slight change from the previous plan to conduct both sales simultaneously. The Department of Telecom (DoT) is planning to auction five blocks of spectrum for 3G and four for WiMAX in each telecoms region or 'circle'. At least two CDMA operators will be able to offer 3G services in each license area, a relief to this community, which was concerned it would be excluded or that its licenses would be awarded later than those to GSM operators. Spectrum for EV-DO data services will be auctioned in the 450MHz and 800MHz bands, and eventually in the 1.9GHz band.
Some international players like AT&T are expected to participate. The DoT has allowed any holder of a UAS (Unified Access Service) license, or any company that "fulfills the eligibility criteria for obtaining a UAS license and which has previous experience of running 3G telecom services," to bid for 3G spectrum. That opens the door for overseas service providers that can find a local partner (overseas companies can own a maximum 74% stake in an Indian operator). No operator can have more than one block per region and the reserve price for each block of spectrum depends on the service area. For Mumbai, New Delhi, and the Category A service areas it is 1.6bn rupees ($37.7m). For Kolkata and the Category B circles it is INR800m ($18.9m), and for Category C circles (mainly rural areas) it is INR300m ($7m). The DoT has stipulated that no two bidders should share a common investor above a 10% stake.
The timing is not good in financial terms, since operators' budgets are under intense pressure, and some had called for the auctions to be delayed until they had better access to funds; and so the government could well make far less from the sale than it would have done a year earlier, when the gains were forecast to be $10bn. But the authorities know that the wider social and economic effects of building out broadband wireless and 3G will outweigh short term financial shortfalls, especially as India is the fastest growing mobile economy in the world, but has pitifully low broadband penetration. The government believes that improved broadband availability, especially with the acceleration of WiMAX build-out, will help India withstand recession, and emerge from the downturn with enhanced competitiveness in the world.
On the 3G side, Vodafone Essar had called for a delay in the sale until early or mid-2009, pleading that "mobilizing financial commitments in the current economic environment is proving difficult". And vendors may not see the huge windfall from Indian 3G and WiMAX that they had hoped for - Indian operators drive famously hard bargains on equipment, such that Nokia Siemens has pulled out of some bids because they would be lossmaking, and that will only be intensified by the current capex squeeze and by the aggressive entry of low cost vendors like Huawei into the market. And earlier this week, the CEO of Bharti Airtel said Indian 3G would only take off once devices were under $100 - by contrast, the highly priced iPhone has not been a success in the country.
Kohli also predicts that there will be mass consolidation in the country's rapidly growing mobile market over the next three years, resulting in just five or six large players being left. As well as incumbents like Bharti, Vodafone Essar, Reliance, Tata and BSNL, international operators are entering the country - including Etisalat, Telenor and DoCoMo - and further operators may bid for the 3G licenses. The foreign players are generally partnering with the new operators who gained 2G regional licenses earlier this year. This will put pressure on the native Indian carriers to look for foreign expansion themselves, and Bharti plans to look for such opportunities from next year, concentrating on neighboring countries. Early in 2009, it plans to launch in nearby Sri Lanka.
The auctions have already been delayed several times by regulatory and legal disputes, although some WiMAX progress has been made in 3.5GHz, and also because state-owned BSNL and MTNL have already been allocated 3G spectrum. These will have to
pay the government amounts equal to the highest qualified bidder among the private players. Ahead of gaining licenses, some operators have already opened bidding for their network supply - Bharti Airtel is talking to Ericsson, Nokia Siemens and others.
The DoT has decided to impose a revenue share of just 1% on WiMAX operators, while 3G holders will have to pay 2% if they have more than 8MHz of spectrum and 1% if they hold less than that. WiMAX players have been allowed to pay spectrum charges after one year of getting licenses while 3G operators will have to start paying from January 2009. The more flexible conditions for WiMAX reflect the government's belief that it will be highly significant in boosting broadband penetration, even ahead of mobile applications, and that it will offer opportunities for smaller operators as well as majors. However, since WiMAX is allowed to be used for voice as well as data, there is an option for a larger player to decide to bid for this as an alternative to the more expensive 3G - or to acquire spectrum of both types, to create a forward looking 3G/mobile broadband combination that could support fixed/mobile convergence, quad play and flexible roll-out patterns. 3G bidders will have to pay at least Rs 2,020 crore for pan-India spectrum, operators who win WiMAX spectrum will have to pay only Rs 1,010 crore. With the WiMAX auction being held first, some players may see how successful they are in that sale before committing to 3G investment, which could drive the price down further.
The WiMAX Forum has issued a report which projects the Indian WiMAX market, including devices, will be worth $13bn in 2012. The Forum forecasts that by 2012 the Indian market will support 27.5m WiMAX users representing approximately 20% of the global WiMAX user base.
"India currently has only 4.5m broadband users out of a population of 1.2bn people. And with recent regulatory decisions, India joins other major developed nations such as the US, Japan, Korea, Taiwan and Russia in freeing up prime spectrum for Mobile WiMAX deployments," said Ron Resnick, president of the Forum. "With the expected demand for WiMAX-enabled devices brought on by India's planned WiMAX deployments, the WiMAX Forum will add an Indian certification lab to its existing network in 2009 to stay ahead of the demand for products in this region."
The timing is not good in financial terms, since operators' budgets are under intense pressure, and some had called for the auctions to be delayed until they had better access to funds; and so the government could well make far less from the sale than it would have done a year earlier, when the gains were forecast to be $10bn. But the authorities know that the wider social and economic effects of building out broadband wireless and 3G will outweigh short term financial shortfalls, especially as India is the fastest growing mobile economy in the world, but has pitifully low broadband penetration. The government believes that improved broadband availability, especially with the acceleration of WiMAX build-out, will help India withstand recession, and emerge from the downturn with enhanced competitiveness in the world.
On the 3G side, Vodafone Essar had called for a delay in the sale until early or mid-2009, pleading that "mobilizing financial commitments in the current economic environment is proving difficult". And vendors may not see the huge windfall from Indian 3G and WiMAX that they had hoped for - Indian operators drive famously hard bargains on equipment, such that Nokia Siemens has pulled out of some bids because they would be lossmaking, and that will only be intensified by the current capex squeeze and by the aggressive entry of low cost vendors like Huawei into the market. And earlier this week, the CEO of Bharti Airtel said Indian 3G would only take off once devices were under $100 - by contrast, the highly priced iPhone has not been a success in the country.
Kohli also predicts that there will be mass consolidation in the country's rapidly growing mobile market over the next three years, resulting in just five or six large players being left. As well as incumbents like Bharti, Vodafone Essar, Reliance, Tata and BSNL, international operators are entering the country - including Etisalat, Telenor and DoCoMo - and further operators may bid for the 3G licenses. The foreign players are generally partnering with the new operators who gained 2G regional licenses earlier this year. This will put pressure on the native Indian carriers to look for foreign expansion themselves, and Bharti plans to look for such opportunities from next year, concentrating on neighboring countries. Early in 2009, it plans to launch in nearby Sri Lanka.
The auctions have already been delayed several times by regulatory and legal disputes, although some WiMAX progress has been made in 3.5GHz, and also because state-owned BSNL and MTNL have already been allocated 3G spectrum. These will have to
pay the government amounts equal to the highest qualified bidder among the private players. Ahead of gaining licenses, some operators have already opened bidding for their network supply - Bharti Airtel is talking to Ericsson, Nokia Siemens and others.
The DoT has decided to impose a revenue share of just 1% on WiMAX operators, while 3G holders will have to pay 2% if they have more than 8MHz of spectrum and 1% if they hold less than that. WiMAX players have been allowed to pay spectrum charges after one year of getting licenses while 3G operators will have to start paying from January 2009. The more flexible conditions for WiMAX reflect the government's belief that it will be highly significant in boosting broadband penetration, even ahead of mobile applications, and that it will offer opportunities for smaller operators as well as majors. However, since WiMAX is allowed to be used for voice as well as data, there is an option for a larger player to decide to bid for this as an alternative to the more expensive 3G - or to acquire spectrum of both types, to create a forward looking 3G/mobile broadband combination that could support fixed/mobile convergence, quad play and flexible roll-out patterns. 3G bidders will have to pay at least Rs 2,020 crore for pan-India spectrum, operators who win WiMAX spectrum will have to pay only Rs 1,010 crore. With the WiMAX auction being held first, some players may see how successful they are in that sale before committing to 3G investment, which could drive the price down further.
The WiMAX Forum has issued a report which projects the Indian WiMAX market, including devices, will be worth $13bn in 2012. The Forum forecasts that by 2012 the Indian market will support 27.5m WiMAX users representing approximately 20% of the global WiMAX user base.
"India currently has only 4.5m broadband users out of a population of 1.2bn people. And with recent regulatory decisions, India joins other major developed nations such as the US, Japan, Korea, Taiwan and Russia in freeing up prime spectrum for Mobile WiMAX deployments," said Ron Resnick, president of the Forum. "With the expected demand for WiMAX-enabled devices brought on by India's planned WiMAX deployments, the WiMAX Forum will add an Indian certification lab to its existing network in 2009 to stay ahead of the demand for products in this region."
