India 3G: What's That Spectrum Worth?

NEW DELHI -- Convergence India 2010 -- Despite the hype surrounding India's upcoming 3G spectrum auction, analysts believe the bidding isn't likely to be that fierce, and that the sum raised from the auction, which is set to begin on April 9, is unlikely to go beyond US$1.54 billion for each pan-India license. (See India Watch: The Road to 3G.)

"We feel the [total raised for each of the three pan-Indian spectrum slots] is going to be around 70 billion Indian Rupees [$1.54 billion] to INR80 billion [$1.76 billion]. This is because only the serious players have applied, and they know exactly what the market is like," Neeraj Jain, director of transaction services at KPMG International , tells Light Reading Asia.

If Jain is right, the three pan-Indian 3G slots would generate INR240 billion ($5.3 billion) at most.

That figure would be a disappointment for the Indian government. While it has set a reserve price of INR35 billion ($769 million) for each of the pan-Indian 3G spectrum slots, which would generate a minimum INR105 billion ($2.3 billion) return, the government had, at one time, hoped to raise $7 billion from the sale of new spectrum. (See India Sets 3G Spectrum Price and $7B Target for India's 3G Auctions.)

There are nine initial applicants for the auction of 3G spectrum (2.1GHz band), including the country's major mobile operators, Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Reliance Communications Ltd. , and Vodafone India . (See Bids Flood In for India's Spectrum Auctions.)

The auction for the country's BWA (broadband wireless access), which takes place two days after the 3G auction finishes, is likely to be more interesting, and less predictable, as the starting prices are lower and there is a greater number, and wider variety, of potential participants.

There are 11 initial applicants, and the government has a reserve price on the 2.3GHz airwaves of INR17.5 billion ($385 million). (See Qualcomm Unveils LTE Plans for India.)

Initially there wasn't much buzz around the BWA auction, as it was assumed it would attract interest from the WiMax players only. But that hasn't been the case. (See Qualcomm Unveils LTE Plans for India and India's WiMax Camp Wants Intel's Support.)

"BWA definitely is going to be more attractive for the players than 3G. For one, it is reasonably priced and so is more attractive… The reserve price for BWA is lower, and thus there is more space to play," says Nareshchandra Singh, principal research analyst at Gartner Inc. , who sees the BWA market as a long-term play for bidders, as whichever technology is used "will take some time to mature."

There are even those in the industry who believe that the BWA auction might raise more money than the 3G spectrum sale, and that the government may face embarrassing questions about how the process has been handled if the financial returns from the 3G auction are lower than originally budgeted.

The timetable is certainly weighted towards an action-packed BWA process. Because the auction of the 2.3GHz slots is happening after the 3G process has ended, the major mobile players that have applied to bid in both auctions -- Bharti Airtel, Reliance Communications (through its subsidiary Reliance WiMax), Vodafone Essar, Idea Cellular Ltd. , and Aircel Ltd. -- may be regarding the BWA auction as a back-up plan in case they're unsuccessful with their 3G bids.

If some of those mobile operators are left without the 3G airwaves they're hoping for, the BWA auction could become a more expensive power struggle than anyone had the right to expect.

— Gagandeep Kaur, India Editor, Light Reading