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Don’t hang up on licences

india Updated: Jan 09, 2011 22:55 IST

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Telecommunications minister Kapil Sibal’s statement that the ‘losses’ from sale of spectrum for second-generation mobile networks are purely notional raises an important question. If India’s policy establishment felt licensing was better than auctions for the spread of telephony in the country, why shift to selling spectrum for third generation networks? India’s evolving telecom policy has been through its share of controversy to reach a happy mean where licensing makes basic telephony universal and auctions help the government and the telecom companies raise revenues. The world’s fastest growing telephone directory may swell a bit more as subscribers in cities get hooked to streaming cricket matches and money transfers on their cellphones. The industry expects one in five Indians will be surfing a high-speed network for business or pleasure by 2015. This would justify the Rs 68,000 crore telecom companies bid at last year’s auction of spectrum. The average 3G subscriber is expected to bring in more business than what voice telephony fetches.

In a way, the writing has been on the wall for some time now. The money in emerging telecom markets remains in voice traffic while mature networks must seek extra rupees from data. Telecommunications investment in the country ought to top Rs 3,60,000 crore in the five years to 2012. Indian mobile telecom companies are, in the process, signing up 15 million customers every month, but the easy money is behind them. Every new subscriber brings less than Rs 250 of business a month and this number is falling precipitously as networks spread from cities to villages amidst a bruising price war that was made possible by selling spectrum cheap. With cellphones getting smarter and cheaper, 3G telecom services could emerge as the digital gateway for millions of Indians. Sales of smartphones are forecast to grow 40% a year till 2015 by when close to 200 million people ought to be on 3G networks. Value-added services like video conferencing, social networks, gaming and mobile television could be a Rs 6,000-crore industry in five years.

All this, however, comes at a cost. The extra revenue telecom companies are eyeing may not materialise in the hyper-competitive Indian market. Operators cannot afford a deadly price war. European telecom companies almost bankrupted themselves while transiting to 3G networks. Fortunately, Indian firms have the benefit of hindsight and a deep understanding of the price-sensitivity of the Indian customer. Signals for a consolidation in the industry may be misleading when seven companies control nearly all of the market. It is imperative that Indian telecommunications prices

3G services right: companies cannot take too much pain, yet they cannot afford to price in all the costs because their future is inexorably tied to the growth of the data business. The next five years hold out big promise, and big risks, for telecommunications in the country.