As the bidding for spectrum for 3G or high-speed internet services is finally likely to happen this year, experts agree that it will change the face of the Indian telecom sector - but in different ways compared to more developed economies.

The difference will be largely caused by the stunted and curtailed extra spectrum on offer – four lots of 5 MHz each. This means that apart from state monopolies Mahanagar Telephone Nigam Ltd and Bharat Sanchar Nigam Ltd - which have been allotted 3G spectrum out of hand, without having to bid for it – only four other companies will be able to provide the services.

Actually, the auction itself could well be further delayed, as it depends on the defence services vacating some of the spectrum they are hogging. They have agreed to do so, provided a fibre-optic network is in place to replace radio waves. But putting up such a network could take quite a while; which would mean that even the prospective four lots could be reduced to two or three.

As and when the auction does happen, analysts say it is likely to lead to two things – it will trigger a consolidation among telecom service providers; and the successful bidders are likely to use the additional spectrum to enhance voice and other 2G services before they focus on genuine 3G services.

With the Department of Telecom having put off allocation of additional 2G spectrum till end-November (See: DoT bows to TRAI on spectrum policy delay), operators are finding it difficult to accommodate the huge surge in subscribers on the limited radio waves available to them. More than 17 million subscribers are being added each month.

Existing telecom players are thus already facing a spectrum crunch; and are likely to initially use the 3G spectrum to provide improved voice calls to customers.
Voice services currently account for more than 85 per cent of a telecom company's revenues, while the 3G services being currently offered by BSNL and MTNL have found pitifully few takers.

''We will be investing in buying 3G spectrum. So it makes more sense to direct it in areas such as voice, where it can start generating revenues immediately,'' The Telegraph quoted an executive of a leading GSM firm as saying.

Moreover, the government's decision to restrict 3G spectrum auctions to just four lots of 5 MHz each in the 2.1 GHz band is expected to force consolidation among operators. A pan-India 3G spectrum slot is likely to cost over Rs6,000 crore.

At present, India has between 7 to 12 GSM players operating mobile services across 22 circles. The average allocation for GSM spectrum is 5.7 MHz per circle; and there are as many as 251 licensees. This translates to an average of 11.4 operators per circle.

After 3G auctions are held, four of these operators will add 5 MHz of additional spectrum. Naturally, they will be better placed to enhance operations than rivals who have only 2G spectrum. Consolidation is therefore inevitable, with smaller players selling out to the bigger ones like Bharti Airtel, Reliance Communications, and Vodafone-Essar.

In fact the big players don't seem too worried about the market getting increasingly over-crowded. Pricing gimmicks may help them in the short run, but they will face problems of infrastructure and funding. ''New entrants are likely to be a threat to each other rather than to incumbents,'' one analyst said.

As many as six new licence holders, including Unitech Wireless, Shyam Sistema, Loop Telecom, Etisalat DB Telecom India and S-Tel, are planning to launch services. Aircel is also considered a new player, although it officially started operations in 1999.

But all these new entrants would have to operate on the 1,800 MHz spectrum, compared with the more efficient 900 MHz band used by existing players. This would hamper their efforts to provide quality services, while existing players are also in a better position to grab some 3G spectrum.

Thus while the government is going through seemingly endless pains to show that the bidding for 3G spectrum will be 'open' and 'competitive', the advantage will still lie firmly with existing players – apart of course from MTNL or BSNL, which need not bid or compete for anything.