INDIA is not known for the efficient management of its natural resources. Many farmers cannot get the water they need to irrigate their crops; industrialists often struggle to buy land to build factories on; and power stations are sometimes unable to get enough coal to fire their turbines. So a big auction of the country’s airwaves to its mobile-network operators, which began on April 9th and may last a couple of weeks, represents a welcome advance in economic governance. Even so, the auction has become a symbol of the constant delays and divisions that still afflict Indian policymaking.
Space on the radio spectrum is the most valuable raw material in mobile telecoms, India’s most dynamic industry. India now has over 560m mobile subscribers, having added over 18m in February alone. But many of these subscribers spend very little, being the beneficiaries of a vicious price war among operators offering calls as cheap as one paisa ($0.0002) per second. By buying a chunk of the frequency space now being auctioned, they will be able to expand greatly their provision of more lucrative “third generation” (3G) services, such as video streaming, which demand faster network speeds.
The government is offering three or four blocks of spectrum in each of the 22 geographical “circles” that make up the Indian market. The country’s six biggest operators are bidding in every circle; three others are picking their spots more selectively. A second auction, beginning two days after the 3G auction closes, will attract bids from 11 companies to offer broadband-internet services over the airwaves.
India hopes to avoid a repeat of the 1990s round, when some firms crippled themselves by overbiddingIn each case the auctioneer will raise the price step by step until the number of bidders remaining in the hunt matches the number of slots on sale. The bidding is intended to start slowly and gather momentum at the auctioneer’s discretion. This kind of “clock auction”, as it is called, is meant to avoid a repeat of the mobile-telecoms licence auctions of the 1990s, when several Indian companies got carried away, crippling themselves by overbidding in auctions for telecoms licences. The clock may continue ticking for two weeks or so before a final price is reached.
The central government hopes to raise 350 billion rupees ($7.9 billion) from the auction to help it close a budget deficit that amounted to 4.14 trillion rupees (6.7% of GDP) in the last fiscal year. It could have raised more money, earlier, but the hands of Indian policymaking turn slowly and painfully. Originally scheduled for January 2009, the auction date slipped repeatedly. Kunal Bajaj of BDA Connect, a telecoms consultancy in Delhi, thinks 3G could have been launched as early as 2006 if the government had put its mind to it.
One reason for the delay was a squabble between the finance ministry, which wanted to set a high floor price for the spectrum, and the telecoms minister, who has earned a reputation for doling out spectrum cheaply. Some of the airwaves earmarked for 3G are also now occupied by India’s armed forces, who, like all good military men, are reluctant to cede the territory they hold. They are still waiting for the national carrier, BSNL, to build them an alternative network before they hand over the airwaves to the BlackBerry-bashers on civvy street.
By 2013 Indians may be spending over $15 billion on 3G servicesThe months and years of delay were not entirely wasted. Fancy phones that can handle 3G services have dropped in price and sales have picked up accordingly. Mr Bajaj reckons that India now has about 40m 3G devices in circulation, even before the extra radio spectrum has been made available. By 2013 he thinks the country will have 60m 3G phone subscribers and another 29m using 3G networks through their laptops. Their combined spending will exceed $15 billion.
About 40% of that money will be spent on things other than voice calls, including text messaging, video downloads and online gaming. In India, which has only 8.6m broadband subscribers, many people will first enjoy the internet over a wireless network. They will use their phones to do many of the things that computers now do in richer countries. Many Indians, for example share digital photographs with friends over their phones, but few upload them to a computer first. Some firms allow customers to store their digital photographs and music on the operator’s network. But without 3G, this takes a painfully long time.
In the early years, however, the chief attraction of 3G spectrum will be more mundane. It will allow companies to offer clearer, more reliable calls to existing customers frustrated by patchy connections on India’s congested urban networks. Keeping these users happy will assume greater importance when India eventually introduces mobile-number portability, which will permit customers to switch operators without changing their telephone number. Indeed, this innovation, which is also overdue, may make a bigger initial splash than 3G. After all; it doesn’t matter how fancy your phone is, or how much room you have on the airwaves, if no one knows your number.
