India To Auction 3G Spectrum; Introduces Phased Number Portability

3G Services
Over a year after the telecom regulator TRAI recommended guidelines for 3G, the Indian government has announced its 3G policy:

GSM Operators: 3G services, which allow multimedia services and high speed data transfer will be auctioned by the government. 3G spectrum will be permitted in the 2.1 GHz band, and 3G operators will have to pay 0.5 percent of their Adjusted Gross Revenue (AGR) as a recurring annual spectrum charge, apart from a one time fee. The revenue share is likely to be raised to 1 percent after 3 years. There will be rollout obligations, including a rural rollout. No mergers will be allowed during the initial five years, as per the release. Contrary to TRAI recommendations, foreign firms and companies without a telecom licence can bid for 3G spectrum, reports the Hindu. That allows players like Verizon, (NYSE: VZ) AT&T (NYSE: T) etc an opportunity to enter India, apart from non-telecom Indian co’s like DLF and Indiabulls. 30 MHz of spectrum will be distributed between 3-6 players, though that has not been decided yet. As per ToI sources, it’s likely that 3 operators will get 10Mhz each.

CDMA operators: Spectrum for EVDO (CDMA equivalent of 3G) will be allocated in the 800 MHz band. There’s no auction for them, but they will have to pay an amount proportionate to the highest bid for spectrum in the 2.1 GHz band by GSM operators. As per the Hindu, CDMA operators can offer low-cost 3G services shortly since they’re already operating in the 800 MHz band. The DoT has not allowed the use of 1900 Mhz band and 450 Mhz band.

More in the extended text on implications of the 3G policy and number portability.

Implications: The policy appears favorable for existing CDMA operators since they don’t have to bid for spectrum; for a price equal to the highest GSM bid for 3G, spectrum is more or less guaranteed to CDMA operators. But what if we see more operators apply for offering CDMA services? Will there be an auction then? With just 3-6 operators (most likely 3), the auction for GSM spectrum for 3G will be competitive, and the existing operators like Bharti Airtel and Vodafone-Essar have a lot to lose. This just might be a case of the winners curse for incumbents. And yet, new 3G operators might take away high APRU (average revenue per user) customers from them. While the debate over the 2G policy hasn’t died down, the situation is compounded by number portability…

Mobile Number Portability
Number portability will be introduced in phases, starting with the Metro Circles of Delhi, Mumbai, Kolkata and Chennai. Major incumbents in this space include the likes of Bharti Airtel, Vodafone-Essar, Reliance Infocomm. Another player likely to be impacted is BPL Mobile which operates in Mumbai; BPL just might see a churn of high-ARPU, early-adopter customers, who have been locked in for several years. I think Vodafone-Essar might benefit most from this in Mumbai, given that their network in the city is better than Airtels. Elsewhere, Airtel, Voda and other GSM operators, already suffering from a spectrum crunch might see low ARPU customers switch to the cheaper CDMA services.

But let’s not get ahead of ourselves – number portablity will be introduced in the fourth quarter of 2008, so there’s a year of fighting left. Interestingly, the onus is on the recipient operator for porting the number. Readers should bear in mind that the government is introducing Mobile number portability, so fixed line operations of BSNL and MTNL will not be impacted. Also, since the initial phase of number portability will be in Metro cities, BSNLs mobile operations will not be affected.