No easy foothold for foreign companies in Indian mobile market

No easy foothold for foreign companies in Indian mobile market

New Delhi: Foreign telecom firms could gain access to India’s booming mobile market through a global auction of 3G licences this year, but low call rates and established players mean it could take years to turn a profit.

Foreign telecoms with 3G experience are allowed to bid at the auctions, opening the way for firms such as AT&T Inc., Emirates Telecommunications Corp., or Etisalat, and NTT Docomo Inc. to gain a foothold in the world’s fastest-growing mobile market.

But India’s 2G operators, including Bharti Airtel Ltd, Reliance Communications Ltd, Vodafone Essar Ltd and TM International Bhd backed Idea Cellular Ltd, are not going to cede their territory easily.

“There will be a mad fight," said Madhusudan Gupta, a Singapore-based analyst with research firm Gartner Inc., which sees Indian mobile users rising to 737 million by 2012 from nearly 300 million now, with 20% of those using 3G. “You have a long queue of foreigners. The potential is enormous in India."

Five 3G licences will be available for most of India’s 22 service zones, although limited spectrum means there will be a maximum of three in large cities such as New Delhi and Mumbai.

Next-generation high-end 3G services give users a chance to enjoy fast Internet access, games and a host of multimedia content from maps to music on their cellphones, areas where 2G has been handicapped by a slower data transfer capability.

India’s mobile user base increased by 25 times between 2002 and 2007, but a winning bid will not be a licence to print money, especially for a new entrant up against India’s cheap call rate model.

Local call rates are less than 1 US cent (45 paise) a minute, and local operators want to implement the same style of model in 3G.

“In India, tariffs have to be where Indian tariffs are," said Sunil Mittal, chairman of Bharti. “The idea in India is to provide telecom services at most affordable rates."

The low-cost plans will be a challenge given 3G has been associated with high-tariff structure globally, as new operators have to put up billions of dollars for licences and networks.

India has set a base price of Rs2,020 crore for a national licence. Actual bids are expected to be higher, especially in lucrative centres such as Mumbai and New Delhi, as the government is looking to raise up to $9 billion.

Foreign telecom firms not already in the Indian market will also have to fork out Rs1,650 crore for a telecom licence, which the existing operators already have.

“It is not going to be a cakewalk. It will be kind of a catch-22 situation. You will have to spend so much, but you cannot pass on in the same proportion," said Gartner’s Gupta. “At the end of the day, price will matter."

Importantly for new entrants, a winning 3G bid does not automatically get a bread-and-butter 2G licence.

T.V. Ramachandran, director general of the Cellular Operators Association of India, or COAI, says new foreign operators will have to look for an Indian partner that owns a 2G network.

“It will be most difficult for pure 3G operators. Otherwise, I feel there will be initial years of losses, which is bound to be there in every business. But as we started late, we have a great advantage."

New 2G licensees such as Unitech Ltd, Datacom Solutions Pvt. Ltd and Loop Telecom Pvt. Ltd could be targets for foreigners, although Indian policy at present does not allow two 2G licence holders to merge their licences for three years from issue.

Billions of dollars of investment in upgrading or building new 3G network would spell more opportunity for global network gear makers such as Telefonaktiebolaget LM Ericsson, Nokia Siemens Networks, Motorola Inc. and Chinese firms Huawei Technologies Co. and ZTE Corp. Overseas, 3G has failed to deliver on the hype that often led to frenzied licence auctions. But COAI’s Ramachandran said India’s size and growth potential gave it advantages over others. If 10% of users migrated to 3G, that would make a good business case, he said.

Rhee So-eui in Seoul, Jennifer Tan in Singapore and Sachi Izumi in Tokyo contributed to this story.