As of 5 May, 22 days into the 3G auction, the bid price for a pan-India 3G license had risen to $2.46 billion. If the auction were to conclude at this level, the Indian government would have raised nearly $10 billion from this auction.
The Indian market is the most competitive in the world, with 14 MNOs operating on sub-$5 ARPU and wafer-thin margins in a voice-dominated revenue environment. The prevailing view is that 3G will offset the rapid erosion of voice revenues with increased data revenues.
However, we believe that the primary benefit to Indian operators from the paltry 5MHz FDD of 2.1GHz 3G spectrum available via auction will be to offload traffic from high-end subscribers for capacity relief. Any incremental data revenues will represent an upside.
The bigger issue is whether Indian operators can execute on a data-driven approach. Indeed, Indian MNOs should think long and hard before introducing the latest 3G devices such as the iPhone, NexusOne, and newer form factors such as the iPad. Evidence from the US and Europe points to the astonishing – even crippling – impact on mobile networks of network overloads due to the surge in data traffic from 3G smartphone users.
Indian MNOs already do a lot with very limited spectral resources, and now face an unenviable dilemma. To hold back from launching the newest gadgets will hand over the initiative to rivals in an unforgiving and ultra-competitive environment.
Launching these devices aggressively will have the opposite effect of bringing their fragile networks to a standstill, as Indian MNOs have not optimized their networks for carrying data traffic. The only short-term option would be to introduce tiered data plans and also adopt usage caps to protect the network.
Indian MNOs should invest in BWA spectrum
Uncertainty around future allocations of 3G spectrum means that MNOs must adopt forward-looking strategies and look to invest in BWA spectrum as well. Subsequent to the 3G auction, there will be a BWA auction for two slots of 20MHz TDD spectrum in the 2.3GHz band.
MNOs must adopt a long-term strategy which will allow subscribers to access high-speed mobile broadband services over multi-mode, multi-band devices that are backward-compatible with existing 2G/3G networks and incorporate Wi-Fi.
As an option, multi-mode 3G-Wimax devices do exist today in limited volumes, and will likely enjoy a cost advantage for some time. However, given the strong industry momentum behind LTE, it would not be a stretch to say that device ASPs in the long term will favor a 3G-LTE combination device over a 3G-Wimax device. As such, the ability of a 3G device to offload data traffic to LTE and Wi-Fi will do a lot to preserve network integrity.
The first step toward achieving this goal would be to bid for and acquire the available BWA spectrum. Several MNOs have already registered their interest as bidders, including Aircel, Bharti Airtel, Idea, Reliance, Tata, and Vodafone.
The growing maturity of LTE as a viable air interface standard that is backward-compatible and also supports both TDD and FDD modes means that the 20MHz TDD blocks of BWA spectrum are no longer an exclusive zone for Wimax, but are also available as 3G expansion bands.
In short, we expect and encourage aggressive bidding for the available BWA spectrum, which could present a scenario of an incumbent 2G operator winning 5MHz of 3G spectrum and also 20MHz of BWA spectrum. Regardless of the technology chosen for deployment, this is a worthwhile investment as the alternative is a race to the bottom and eventual exit from the market.