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BW Businessworld

Misplaced Timing

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When telecom minister Kapil Sibal announced that auction for the next generation of services — 4G — would be held by this year-end, the question on many lips was ‘why now?'. The announcement is not well timed, given the current circumstances of the telecom services industry.

First, his ministry will have to re-auction cancelled 2G licences under the terms of the Supreme Court's recent ruling. At the same time, many companies have petitioned the Supreme Court for a review of its decision, which would delay any timetable the government may have in place.

Secondly, the demand for 3G services hasn't quite met the expectations of telecom companies that provide them. Analyst estimates put the number of subscribers at between 17 and 20 million, or under 2 per cent of the total subscriber base. One big reason: 3G services, in contrast to 2G services, are much more highly priced.

A report by Goldman Sachs in September 2011 put the cost of downloading a song at Rs 50, and watching a football match for an hour at Rs 300. Most expect that reaching 10 per cent of subscribers — and thus reduce prices — could take another three years or so. Revenues from 3G services are expected to reach Rs 10,000 crore by 2015.

Third, most providers of 3G services have taken umbrage at the government's restrictions on interconnect agreements — that allow providers to use another company's networks in areas they may not be present in — and have said they will ask for a refund of their money paid in the 3G auction. Sibal's government may have made a premature commitment in the 4G announcement.

(This story was published in Businessworld Issue Dated 12-03-2012)