3G Auctions- Impact on the stakeholders

The auction for the 3G spectrum finally culminated on May 19

Analyst Contacts
after 34 days of a highly competitive and transparent bidding

Gaurav Dixit process. The Government has been able to generate around

Manager Rs.68,000 crore from the 3G auction alone, which is far in

Tel- +91-22-67543483 excess of the initial estimation of around Rs.35,000 crore which
gaurav.dixit@careratings.com
it hoped to generate from the sale of both 3G and BWA

spectrum. With the auction of the BWA spectrum slated to

Sonam Doda
Analyst begin soon, the Government is all set to surpass its initial

Tel- +91-22-67543511 estimates by a fairly large amount.

sonam.doda@careratings.com

The telecom operators adopted the strategy of bidding

May 20, 2010
aggressively in the circles where they are in a relatively strong

Visit us at www.careratings.com position as opposed to a pan India spectrum, the price for
which had reached astronomical proportions. This strategy

was adopted so as to enable the operators to consolidate their

position in the circles where they are in a dominant position

and to ensure that after the launch of 3G services their

subscriber base remains intact and they are in a better position

to attract new customers on account of their capability of

offering a full bouquet of Value Added Services (VAS).

The considerable delay in the start of the auction has however, resulted in a drastic change

in the position of the operators. The declining ARPUs have slowed the industry’s profit

growth. Amidst these difficult times, most of the operators raised heavy debt to fund their

purchase of 3G spectrum which has put a strain on their capital structure. Moreover, the

operators will have to incur additional expenditure for the roll out of these services which

will further impact their already declining margins. The impact will be felt to a greater

extent by the new entrants who have bid for the 3G spectrum as the expenditure incurred

on the acquiring of spectrum and roll out of services is likely to set them back by a few

years for achieving breakeven.

However, even though initial implementation of 3G services by operators would mean

increased outlays and lower returns on investment, in the long term the operators are

likely to benefit through increased revenues from VAS which currently contribute just 8-

9% to the revenues of the operators. In addition, the 3G spectrum will also help the
operators to manage their 2G spectrum more efficiently by providing additional spectrum

for voice services and also provide them with a competitive advantage over the operators

offering only 2G services.

With the scheduled launch of 3G services in September, the customers will be able to
experience an array of Value Added Services on their mobiles, like high speed internet,

video calling, Live TV and high speed music and video downloads at reasonable tariffs as

the operators in a bid to capture market share will offer these services at competitive

prices. Thus 3G will give millions of people access to high speed broadband internet along
with a number of innovative data services and hence enhance the customer’s mobile using

experience.

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