Telcos Stuck With Bid Errors

It is old news that the Indian telecom industry is going through tough times. However, that the current state of affairs might continue for another two-to-three years will further pull the industry in depression.

In a recent interview Telecom Regulatory Authority of India (TRAI)'s new Chairman, Rahul Khullar says that the sector made some mistakes and now has to live with them. He points out high price paid for spectrum as one of the mistakes operators made. (See The Hindu Business Line.)

However, Mr Khullar is right in proclaiming that the Indian operators made a huge blunder in bidding so high for the 3G spectrum two years back. "They did not require to bid so high for 3G. Even if you double tariff you cannot recover the price paid for 3G in the short term. They did not anticipate that 3G will not initially see the surge in uptake," elaborates Deepak Kumar, independent telecom research consultant.

Besides as it is turning out the operators further erred by bidding high for metros like Delhi and Mumbai. The winning bid for Delhi was INR 3316.93 crore and for Mumbai it was INR 3247.07 crore. According to the recent research report by Nokia Siemens Networks, the uptake of 3G is happening more in tier II cities. "The fact is that a high ARPU consumer will be connected to the net throughout the day in office through lease line. And at home he has WiFi. The usage of 3G would be minimal," says Kumar. (See Operators Fear Stalling 3G Growth: NSN.)

It would be best if the operators refrained from bidding in the forthcoming 2G auctions. TRAI might have to reduce the reserve price substantially if the operators do not respond.

Khullar further elaborates that the telcos should focus on other areas to make up for the loss in revenue, which is currently happening. Enterprise and Value Added Services (VAS) are believed to be the other areas which can help the operators make up for the loss of revenue. The new subscriber additions are consistently falling and so are the ARPUs (Average Revenue Per User). However at the same time the

Even if operators focus on VAS and enterprise it is highly unlikely that this strategy would help them to plug the loss. "In VAS the best case scenario would be 13-14 percent contributin to the revenue. Similarly in enterprise, the operators cannot command a premium," says Kumar.

Gagandeep Kaur, Editor, Light Reading India