The 34-day auction of 3G mobile spectrum finally ended yesterday. The government has reaped a bounty given that operators have bid around Rs 677 bn for the much-sought after spectrum. Bharti Airtel and Reliance Communications have won the bids for 13 regions each. They would need to shell out Rs 123 bn and Rs 85 bn respectively for these wins. Vodafone won nine regions for Rs 116 bn.
These companies will now face the challenge of pricing their 3G offerings in such a way that creates demand for the service and at the same time is a profitable proposition for them. This however looks highly improbable in the initial years. This is considering India's 'ultra-low priced' telecom market that will make it difficult for these companies to get consumers to pay much higher prices for using 3G services.
After all, these companies will have fresh memories of the European experience at the start of this decade. Then, European telcos had booked heavy losses after they paid more than US$ 100 bn to buy 3G licenses and then not finding enough consumers for the same.
Anyways, the success of the 3G auctions is good news for the government. The Rs 677 bn mop-up will help the government cut its fiscal deficit to nearly 4.9% of GDP in FY11, from 5.5% targeted in the Budget. For mobile companies, it's a large sum of money that has to be paid out. And this is at a time when companies are facing severe pricing pressure in the 2G space!