3G: Right decision or a goof up???

Today got an opportunity to hear two interesting perspectives on the state of telecom sector in the country. Although the two perspectives were from fundamentally different sides, one from a MNC telecom equipment developer side and the another from VAS side, they did resonate on the point of utterly pathetic situation of service providers in the country. I have talked in the past about dwindling ARPUs, wafer thin margins, voice still being the primary bread and butter, but with rising inflation, increase in opex after a major jolt of capex in the form of 3G has left the service providers in tatters. One cannot underplay the importance of service providers in the telecom ecosystem, but the fact that higher uptake of smartphones has actually not made much difference to their business is an indication of inequitable roles in the telecom ecosystem. Why should the service providers alone invest in the network? More often than not a technology is pushed through by large telecom manufacturers, driven more by getting a return on their high R&D expenses, rather than understanding the needs of the region,or any consideration for the shelf life of an existing technology. In the Indian scenario 3G auction was the only way MNCs could get the service providers to buy a technology which was to be weeded out in a matter of 1-2 years. With a windfall gain for the Government it was a win win for all but the service providers and the ordinary subscribers of this country. The 3G auction was at best a pyrrhic victory for the service provides as they fought against each other for lucrative deals. What was forgotten was the fact that irrespective of winners the technology would actually be bought from a handful of companies with huge cross holding of patents, thereby ensuring a good earning for the manufacturers. If the above was not bad enough, to debar the Chinese companies from getting business Government bodies expressed security concerns. Now it is anyone's guess how much of it was security risk and how much ensued from lobbying by the likes of western MNCs eyeing business from Indian service providers. Undoubtedly the large MNCs still toe the standard line of 3G being a necessity before 4G which has no rhyme or reason. Fact of the matter is that even after huge outlays in network infra and subsequently in marketing campaigns, it will still take at least 3-4 years for the firms to reach a decent subscriber base out of metros.

In my opinion, auctions should be conducted by combinations of equipment manufacturers and service providers, this will ensure that the equipment developers are not mere spectators immune to a service providers situation but in case of servcie not being picked up by subscribers have a financial liability. This would push the telecom equipment developers to remove information asymmetry inherent in the market and offer the best solutions keeping in mind the fact that they would need to spend again in the auction if the shelf life of technology is not appropriate.