It's Diwali, but don't expect any fireworks

Mohammad Chowdhury
Published: 12, Nov 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.

As the 2G auctions commence this Diwali week, we should not expect too many fireworks.  For months both the GSM and CDMA players in the industry have pleaded that using the 3G auction outcomes of 2010 as a reference point to set 2G spectrum pricing today is not realistic.  Ultimately the reserve prices for next week’s auctions were set at 84% of the 2010 levels.  That translates to over INR 1500 per capita of population in Delhi, in a country where the average spend is only INR 100 per month.  Now the CDMA players have withdrawn from the auction completely.  And we can expect nothing more than a few flutters to top up spectrum in selected circles from the GSM players who remain.

So there is going to be no repeat of the staggering figures we saw at the 2010 auctions: $34bn spent chasing limited amounts of 3G spectrum by players who felt they absolutely had to have a piece of the action to be relevant for a data services revolution in India in the future.  There was so little on offer and so much to play for, that offering such high prices made rational sense at the time.

This time around, low auction participation may be a silver lining in the cloud of regulatory uncertainty that hovers above the industry, because there are three risks arising from spectrum costs going even higher for service providers.  First: any additional cost burden on operators will result in further price hike considerations.  This is because operators are not generating enough profits to absorb new cost increases.  Second: price hikes would result in some drop-off in usage for low-end, price sensitive users.  Finally: further margin decline for operators will result in more of a slowdown in conquering the final frontiers of Indian coverage – rural – where penetration is still sub 40%.

If you’re looking for fireworks this week – stick to the Diwali celebrations!  Happy Diwali!

  • Anand Kulkarni

    Very well predicted sir! There was no Diwali bonus through the auctions for the drying up coffers of the government. Unfortunately spectrum is such a scarce asset where there is no market to discover the real price of it. This flop-show is going to go a long way in keeping the spectrum prices in the higher territory and government will have no regret in keeping this weapon idle in its armor while the India is struggling hard to conquer new skies.

    on Nov 17, 2012
  • vivek rao

    How true! Brilliant

    on Nov 13, 2012
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