3G auctions kick off in India

India kicked off what is expected to be a windfall auction of third generation mobile and broadband wireless access spectrum on Friday, with a mixture of domestic and foreign-backed telecoms operators placing bids.

Bidding began at 9:30am India time with nine bidders competing for 3G slots in India’s 22 telecom regions. Six of these are expected to compete for the three pan-India allocations available in a process that could take days or even weeks.
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“We have already put in our first bids,” a person familiar with the process from one of India’s top mobile phone companies said Friday.

National allocations of 3G and BWA spectrum could together cost carriers up to $3bn each, according to estimates by Macquarie Securities. Market leaders Bharti Airtel, Reliance Communications, Vodafone Essar and Tata DoCoMo are expected to be strong contenders.

The government, which has set a reserve price of Rs35bn ($789m, €589m, £514m) for a national 3G allocation and Rs17.5bn for the BWA equivalent, has estimated it will earn Rs350bn from the auction in its budget for the year ending March 2011.

The long-awaited spectrum allocations are expected to mark the real start of the internet age for India, which has struggled to roll out fixed-line broadband networks given the difficulty of building land-based infrastructure in the country.

But analysts expect this to come at a heavy cost to operators, which are already struggling with intense competition..

India has nearly 600m mobile phone subscribers and is adding nearly 20m new users a month as more than 12 operators wage a price war to build market share.

The country suffers from an acute shortage of spectrum – the radio waves that carry mobile signals – with much of it still in the hands of government departments, such as the Ministry of Defence.

Even the spectrum allocations earmarked for 3G, at 5 megahertz per carrier, are regarded as inadequate by international standards.

“It’s one third to one fourth of what was allocated in Europe,” said Kunal Bajaj. “In Europe, the minimum allocation size was 15 MHz.”

The acute shortage of spectrum is expected to lead to intense bidding for 3G among operators. There are only three spectrum slots available in most of the country’s 22 telecom service areas.

The government said 11 companies were competing for the BWA spectrum, with two pan-India slots available. The BWA auction will start two days after the 3G auctions close.

The successful bidders will have to deposit their payments within 10 days and will receive spectrum in September. Commercial launch is expected early next year.