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2G or not 2G? The Thirst for Indian Spectrum

Mohammad Chowdhury
Published: 17, Oct 2012

Mohammad Chowdhury is PwC's Telecom, Media and Technology consulting leader across Australia, SE Asia and New Zealand. Until recently he built the practice in India where he became one of the most quoted industry experts in the country. Mohammad has served as an adviser to telecom sector reform in Saudi Arabia, Zimbabwe, Ethiopia, Slovakia, Poland and Slovenia and during 2015 as national telecommunications adviser to the Government of Myanmar. Previously in his career he has conducted significant strategic roles at Vodafone and IBM. He is quoted regularly by the Financial Times, Wall Street Journal, BBC, CNBC, TV-18 and NDTV. Mohammad has worked in 83 countries, lived in 7 and speaks 6 languages. He has a BA in Politics, Philosophy and Economics from Oxford University, an MPhil in Economics from Cambridge University, and strategy training from Harvard Business School. He was born in London, has family origins in Bangladesh, and is married with two sons.

In telecom there is a general belief that wireless spectral efficiency will keep increasing, but nowadays it seems we are always on the verge of a train crash. In India, the average mobile operator in Mumbai runs on 1/7th the spectrum available to an operator in London. And coming to our metros soon will be a world of multi-device connectedness, with buildings, cars and air-conditioners requiring M2M connectivity to tracking devices, mobile phones and GPS systems. So, the question is, will 1/7th be enough?

As the much awaited spectrum auctions approach, the conundrum of “2G or not 2G” begs an answer. Look out for three groups of players who will participate: the “licences cancelled” group, the “needs more capacity in metros” players, and the “India telecom market entrants”.

Operators who had licences cancelled will have to weigh up which local service area to repurchase spectrum rights in. This will be principally a function of the subscriber base the operator has, and where it sees the growth opportunity. Decisions will be tempered by affordability of spectrum, itself a function of access to debt or shareholder funding.

Capacity shortages will practically only apply to metros and therefore the question for this group will specifically be about their needs in Mumbai, Kolkata, Chennai or Delhi NCR. Granted, operators run their city networks on a relatively very economic use of 2G spectrum, but the real question is how much growth might they expect in voice and data traffic? Voice penetration has arguably close to peaked, with average metro mobile subscriber penetration well over 100% already in India. On the other hand, alot of the future growth expected in metros is in data, where the volumes could rise very quickly. Decisions will be made on the basis of how much 1800 MHz spectrum can do to solve the shortage: if the demand growth is in data, then 3G or LTE will be more useful in future, not 1800 MHz which has traditionally been more efficient for carrying voice.

Perhaps the most interesting question is whether new entrants will make a mark on the auctions. This is interesting because it will serve as a litmus test for India’s sustained appeal as an investment destination into an industry that has promised value to investors over the last decade. Capturing new value appears to be more challenging now than before, but on the other hand, opportunities in many other markets appear inferior. So even though India may be less attractive than it was a few years ago, new players may still be evaluating the opportunity to come in. Therefore expect any activity to come from players who are well established in their home markets but seek new growth, and are experienced enough to take on the challenge of building a business in a market full of surprises. And don’t discount the possibility of spectrum acquisition blended with M&A activity also.

Welcome to No Wires Attached: informed and pointed opinion on the world of telecom, plus the odd digression into other subjects, from time to time.

  • Satish P

    "Decisions will be made on the basis of how much 1800 MHz spectrum can do to solve the shortage: if the demand growth is in data, then 3G or LTE will be more useful in future, not 1800 MHz which has traditionally been more efficient for carrying voice." Do you mean LTE at 1800 MHz will not serve any purpose or the Bandwidth offered in the auction is not sufficient. I think you intend to say that a lower band 700Mhz should be used for LTE!!

    on Oct 17, 2012
    • Mohammad

      hi Satish - the issue is that the spectrum being offered at 1800 MHz may not be enough once data trafffic really takes off - Indian operators remain spectrum starved with an average of less than 10 MHz each in India, compared to well over 50 MHz in most countries! thanks for your comment.

      on Oct 17, 2012
      • Satish P

        Yes, you are right in the 1800MHz band the government will offer only 5MHz (as of now) and that will definitely not fuel data growth.

        on Oct 18, 2012
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