Pan-India 3G Spectrum Auction - Problems

3G, Third generation for wireless Technology. Mostly 3G is mobile phones to connect the phone to the Internet. A Technology which will be an sure shot success in this huge demand for Telecommunication products. 3G mobile Telephone services are expected to be launched by the end of 2010 by the bid winners.


The Auction of  Pan-India 3G Spectrum has turned out to be more successful than the expected.  Initially the Base price for the Pan-India 3G Spectrum was fixed at Rs.3500 Crore where the auctions were took off.  But things turned more profitable for the government after the Nine Bidders(Out of this Bharti Airtel, Vodafone, Reliance, Tata, Aircel and Idea are among them) has bid the price for close to double the base price.



The bidding was started for Rs.3500 as base price on the day one, but the by the 34th day the bidding has gone up by more than 400% increase.  By the end of 34th day the bid was closed at Rs.16,828 crores, for the 22 circles/service area covering.


The government is gaining somewhere around Rs.63,885 Crores from both 3G and Broadband Wireless Access (BWA), which was earlier expected for about Rs.35,000 Crores. 


Among these circles, Mumbai circle is the most expensive circle which lead at Rs.3,247 crores, followed by Delhi at Rs 3,316 crores, Tamil Nadu and Maharashtra.


Here is the Gainers/Winners of Top Ten Circles for Pan-India 3G Spectrum as on end of 34th day Auction.

3G Auction - Final Results

Service Area	Winning Price	Successful Bidder/s
Delhi	3,316.93	Vodafone Essar Limited Bharti Airtel Limited Reliance Telecom Limited
Mumbai	3,247.07	Vodafone Essar Limited Bharti Airtel Limited Reliance Telecom Limited
Karnataka	1,579.91	Idea Cellular Limited Bharti Airtel Limited Aircel Limited
Tamil Nadu	1,464.94	Vodafone Essar Limited Bharti Airtel Limited Aircel Limited
Andhra Pradesh	1,373.14	Idea Cellular Limited Bharti Airtel Limited Aircel Limited
Maharashtra	1,257.82	Tata Teleservices Limited Idea Cellular Limited Vodafone Essar Limited
Gujarat	1,076.06	Tata Teleservices Limited Idea Cellular Limited Vodafone Essar Limited
Kolkata	544.26	Vodafone Essar Limited Aircel Limited Reliance Telecom Limited
Punjab	322.01	Idea Cellular Limited Reliance Telecom Limited Tata Teleservices Limited Aircel Limited
Kerala	312.48	Idea Cellular Limited Tata Teleservices Limited Aircel Limited

Source: Dot 


What are the Problems of High 3g spectrum Bidding Rates?
Since the prices of the  bidding has gone up for such an extent, it could be an adverse effect on it.


Since the BSNL and MNTL was given the 3G Spectrum last year for an cheaper price, now the price went up, the BSNL and MTNL has to stand up for that price and match it. This high price will hit both the PSU's very badly. Where already BSNL is running in losses.


More on, what wil worry more is, the Telecom players have bidden over than the limit, which will hurt them in future. Since the bidding is gone beyond the rational levels, a higher than estimated payouts by the operator would leads to an negative effect for the whole sector.


Weaker operator are already feeling the heat from them, since them may not be able to stand among them in the competition.  Additionally, MNP(Mobile Number Portability), which is expected to be launched very soon, where one can change its operator without change in Mobile number would make the case worse for them.


Not only this, there could even hurt their profits in the balance sheet in this low margin cut throat competition and interest burden and amortization costs will goes up which may even lead into closure of business. Already State Bank of India and IDBI Banks has already said that the telecom players has to pool up money from other windows available to them, as they already leding Rs.40,000 crores.


Even the bigger players Airtel (Rs.123 Billion Rupees approximately), Reliance, and Aircel could only obtain the licenses of 13 out of 22 circles, whereas Vodafone only 9 Circles.  Which means the customer has to move to the other networks in the absence of 3G services of their existing networks. Obviously the companies loses their customers.  Already top broking houses has predicted that there could be around 3-4% less in the profits of the companies especially., Airtel.


Now, there could be some Merger and Acquisitions can be taken place, because of this high burden. But even this may not works for few merged players since the M&A rules restrict a merged player to a 30% market share in any circle.
Not only to the companies but the impact will be even on the end users.  Now don't expect 1p/sec calling and other cheaper rates from these players, since they have invested so much money on it, ultimately they are going to charge it from the end customer. 
Let see how the things goes.