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India's 3G future: Still early days

Apr 9, 2010

The breakneck growth seen by the Indian telecom sector over the past few years is a story the world has seen with gaping breath. A new chapter to this story will be added soon. This is given that the much-much awaited auction for 3G mobile services has begun today. The auction is set to add Rs 350-500 bn to the government cash registers. How much will it add to telecom companies' profits is yet to be worked out.

Many expect the launch of 3G services to change the face of telecom in India. But we worry about the level of penetration that this service can see in the coming years. If one were to go by the global experience, the usage of 3G has been much lower than expected. In fact, till mid-2006 (latest data available), just under 7% of the total global mobile population had migrated to 3G.

Only a few countries like Japan, Korea, Germany and Italy have seen decent growth in 3G over the years. Even in the US, 3G usage has only seen a recent surge and that too owing to the spread of Apple's iPhone. Except these examples, the 3G uptake in the rest of the world has been slow.

With India being a market where 'affordability' is a primary concern for users, a huge success of 3G (as compared to 2G) is doubtful. The penetration will be very slow. This is given that more expensive (than 2G) 3G mobile handsets will take time to get into users' hands.

Coming back to the 3G auctions, we do not expect Indian telecom players to bid very high for the licenses. This is given that they would have the European experience before themselves, where companies had gone bankrupt after bidding astronomical sums for 3G spectrum in the beginning of this decade.

Realistic pricing would mean that winning players will be able to keep 3G tariffs on the lower side. This will also leave them funds to invest in rolling out the network into more areas.

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