Who’s wining the telecom batttle in India? (ii)

Following my previous post related to current situation in India, I wanted to share the latest information coming from TotalTelecom and Rethink Wireless regarding the recent 3G auction that at long last is underway, with bidding starting on Friday starting the race for India’s third-generation bandwidth with the country’s top three mobile phone operators and one smaller rival Thursday filing applications to bid in a long-awaited auction.

After years of wrangling over reserve prices, rules and license numbers, the pent-up demand for mobile services in India is huge. For this reason, bidding is expected to be fierce, pushing prices to the high end of expectations, though the intense pressure on ARPUs in India will deter carriers from “going too crazy”, as one local analyst put it. Nevertheless, the combined proceeds of the 3G and the BWA (broadband wireless spectrum in 2.3GHz) auctions could top $12bn.

The Indian government is auctioning three slots of bandwidth to offer 3G services in each of 17 telecom service areas and four each in the remaining five areas. The successful bidders will be allowed to offer 3G services on a commercial basis from Sept. 1. Nine local mobile phone operators, including top players Bharti Airtel Ltd., Reliance Communications Ltd., Vodafone Essar Ltd. and Idea Cellular Ltd., along with smaller rivals Tata Teleservices Ltd. and Aircel Ltd., are bidding for 3G bandwidth.

The starting price was INR35 billion. The bidding for one pan-India slot will start at INR43.99 billion when the auction resumes Tuesday, the DoT (Department of Telecommunications) said. The Western Indian province of Gujarat joined Delhi as one of the most sought-after service areas, attracting the highest price of INR4.16 billion. Gujarat received five bids for the three available slots, Delhi received four bids for three slots. Starting price for both the service areas was INR3.20 billion.

Four service areas–West Bengal, Orissa, Assam, and Jammu and Kashmir–had no bids, even on what was the third day of the auction.

A carrier gaining national licenses in both 3G and BWA could pay $3bn, according to experts. The state telcos, BSNL and MTNL, already have spectrum and are rolling out 3G and WiMAX, so the main private operators need to catch up quickly. This should put the big four cellcos – Bharti Airtel, Reliance, Vodafone and Idea Cellular – in the forefront, along with players like Tata, which has an ambitious fixed/mobile program centered on WiMAX.

The Indian government has set a reserve price of INR35bn ($789m) for a national 3G allocation and INR17.5bn for the BWA equivalent, and is aiming to raise at least INR350bn ($7.9bn) in total. However, many think the haul could be far larger as carriers race to add capacity, to improve quality of mobile service (dire in many areas); provision new subscribers (which are signing up at a rate of 20m a month); introduce higher value data and business services as GSM ARPUs collapse; and address India’s acute broadband shortage.

However, operators are still likely to face capacity crunch in some areas, since the 3G spectrum will be given out in chunks of just 5MHz, in contrast with many markets where carriers gained 15MHz. All bidding details will be kept secret until the end of the process, both from the public and other bidders, to guard against collusion and tactical bidding. There are nine applicants for 3G licenses and 11 for BWA.

One of the most keenly watched outcomes will be in the BWA sale, where Qualcomm is bidding to try to get one of the three national networks that will be created in 2.3GHz to run TD-LTE rather than the favored technology, WiMAX. Faced with a challenge in what was previously seen as a clear run for WiMAX, the industry body supporting the older system has responded with an aggressive product roadmap. The WiMAX Forum has already argued that it will be impractical for a winner to use TD-LTE as it will not be fully commercialized for a couple more years, and India’s broadband requirement is urgent. Now it is also promising to leapfrog LTE and enhance WiMAX offerings by the end of the year, even before the expected improvements that will come with the forthcoming WiMAX2, or 802.16m, standard.

While WiMAX2 will be ratified this year and some carriers aim to start tests using prototype kit during 2010, the Forum is now promising more immediate enhancements to strengthen its technology against TD-LTE, especially with an eye on Indian bidders. Some of these changes will be updates to existing WiMAX1 technology, while others will anticipate WiMAX2. Both will be available in certified products in time for commercial roll-outs by Indian operators, which are expected next year (BSNL and MTNL are already offering live services in some markets, but they have already commited to WiMAX).

Let’s see what finally happens. Will keep you updated. Best, CVA