India looks to a new telecom generation

Posted in India | 15-Nov-07 | Author: Indrajit Basu| Source: Asia Times

India's Communications Minister Andimuthu Raja (L) in New Delhi, October 2007.

KOLKATA - Succumbing to pressure to further open up its telecommunications sector, India this week unveiled the broad guidelines of its long-awaited policy for newer, third-generation ( 3G) telephony. But simultaneously, by dashing the hopes of some local players, it could also divide the country's telecom sector down the middle.

Recently appointed Telecom Minister A Raja announced that in ignoring suggestions of the powerful Telecom Regulatory Authority of India (TRAI), his ministry would offer the available radio frequencies that can provide 3G services via an auction process in which not only would all existing operators be allowed to bid, new international players could also participate. (These frequencies, called spectrum, are electromagnetic frequencies used for communications, including those for radio, radar and television, and they are much sought after globally.)

The announcement came as a surprise to the industry because in a recent discussion paper TRAI recommended, and the government promised to adopt, that only existing operators would be allowed to bid for 3G spectrum during an auction.

According to the minister, the Department of Telecom (DoT)will initially offer 10 megahertz ( MHz) of 3G spectrum each to three bidders in each of India's telecom circles. And if the government decides to allot a lower band (5 MHz) of spectrum in certain telecom circles, more than three players will be allowed to bid. Telecom circles are sectors or regions into which the country is divided for telecom services.

The DoT also said that additional spectrum will be offered to those providing telecom services using code division multiple access (CDMA) technology, while spectrum has been set aside as well for the introduction of WiMAX, (worldwide interoperability for microwave access) services. WiMAX is a telecommunications technology aimed at providing wireless data over long distances in a variety of ways, including on the radio frequencies used by 3G technology. (3G technologies enable network operators to offer users a wider range of more advanced services while achieving greater network capacity.)

In other words, India has not only paved the way for 3G services for three to six players in each of the country's 23 telecom circles, it has also opened up for cutting-edge WIMAX services. Moreover, by auctioning 3G separately and not clubbing the services with the older second-generation (2G) services - as recommended by TRAI - experts said that "the government has categorized 3G as a separate form of telecom services that makes 3G's entry easier for everyone, including new foreign bidders".

According to a statement by DoT, the base price for 3G spectrum will range from US$7.5 million to $40 million, depending on the city in which it is offered. "The 3G licenses will be granted through a controlled, simultaneous ascending e-auction, by a specialized agency to ensure transparency in the selection process," the DoT statement said. Besides the initial one-time spectrum fee, successful operators will also have to pay an additional spectrum charge of 0.5% of their revenue, which will be increased to 1% after three years.

"For India's telecom sector this is a significant development as the country has now moved a step forward towards introducing latest-generation mobile services," said analysts. And that is not just because Indian consumers and telecom companies have been anxiously waiting for over three years for the government to announce a 3G policy, but also because India perhaps is the only country to take a big leap towards next-generation telecom technologies (3G and WiMAX) all at once. In most other regions, including China, South Korea, Europe and the US, 3G services came much before WiMAX.

So, how can 3G and WiMAX change the telecom landscape? The answer is simple - significantly. A typical 3G or a WiMAX mobile network can deliver very high speed connectivity (from 3-4 million binary pulses per second –Mbps - for 3G to 15 Mbps for WiMAX.). Plainly put, this means that besides voice and messaging services, these networks can drive a variety of applications on a handheld device to facilitate video telephony and video conferencing, mobile TV, interactive gaming, streaming video and music downloads and mobile TV.

But more importantly, 3G and WiMAX could prove to be a gold mine for local telecom service providers. Most of these face tough times because they have been unable to improve the quality their services and hence the average revenues per user (which have been plummeting over the past five years driven by cut-throat competition) due to the government's inability to release additional spectrum.

The 3G (and WiMAX) spectrum that the government has just decided to release could therefore provide an opportunity for local mobile service providers "to position 3G mobile telephony as a premium service and boost their average revenue per subscriber and focus on its adoption in urban and rural areas", says a recent report by IDC, the global information technology research group.

Yet, many local operators - particularly those offering GSM (global system for mobile communications) services - including the two largest GSM service providers, Bharti Telecom and Vodaphone - are unhappy that the government has decided to auction 3G spectrum separately to new players instead of giving existing GSM operators the first rights, as recommended by TRAI.

"The new policy benefits just select operators and encourages poaching of subscribers of existing GSM players," said T V Ramachandran, director general, Cellular Operators Association of India (COAI), a GSM lobby. COAI has also alleged that the government's decision violates the regulator's (TRAI) laws and is "bizarre" since it proposes as many as eight to nine operators in every 2G circle while seeking to introduce a near monopoly market for 3G players.

The other reason the GSM lobby is not excited about 3G, says Rajesh Jain, a former dotcom entrepreneur and now a telecom expert, is that many GSM operators have already invested heavily and launched the higher-end 2G service called EDGE (enhanced data rates for GSM evolution; also called 2.75G in industry parlance), and are not keen on incurring the "huge incremental investments" required for 3G.

However, the Association of Unified Telecom Service Providers of India (AUSPI), a telecom lobby that represents the CDMA community, has lauded the new policy. AUSPI says that while benefiting customers, the new policy will also help accommodate more players and enable the provision of value-added services through broadband, even in remote areas.

But with COAI announcing that it has decided to challenge the new policy in the courts, it appears that as happened in many other countries earlier, 3G's introduction in India faces tough times.

Indrajit Basu is a Kolkata-based journalist.