The impact of the prices paid in India will result in an increase of capital employed for Idea, Bharti and Reliance of roughly 3.0%, 3.4% and 10.4% compared to the 255% increase for Vodafone. The immediate impact on the ROCE is to reduce the returns in the range of 0.2% to 0.9% which is relatively benign compared to the damage inflicted in the UK. Furthermore, unlike the UK, the Indian operators will be able to deploy their networks more cheaply and achieve greater performance by jumping to 3.5G in the form of HSPA. The spectrum will be used immediately to relieve congestion on the 2G voice networks and India will quickly emerge as the centre of innovation for low cost smart phones, applications and new mobile business models. The auction winners will not have to wait 10 years before they can start earning a return. Indian 3G prices for Mumbai, Delhli and Kolkata were certainly high and above expectations but they were not anywhere near as exuberant as those of the UK or Germany.
As regards the business case for the 3G spectrum, the 3G spectrum in India is both about voice and mobile broadband. Accessing the Internet from handsets i.e. the small screen will be a much bigger phenomena in emerging markets compared to developed countries. This is already apparent in some markets such as Egypt, Morocco and the Philippines. What matters now in India is not how much was paid for 3G spectrum, and as a classic “sunk cost” it should have little bearing on future decision making, but how quickly can a more rational market structure be established. Greater certainty over the future regulatory environment, including 2G spectrum pricing, along with consolidation and an end to the brutal price war will have a far more pervasive impact on future returns than the prices paid for 3G spectrum.
As regards the business case for the 3G spectrum, the 3G spectrum in India is both about voice and mobile broadband. Accessing the Internet from handsets i.e. the small screen will be a much bigger phenomena in emerging markets compared to developed countries. This is already apparent in some markets such as Egypt, Morocco and the Philippines. What matters now in India is not how much was paid for 3G spectrum, and as a classic “sunk cost” it should have little bearing on future decision making, but how quickly can a more rational market structure be established. Greater certainty over the future regulatory environment, including 2G spectrum pricing, along with consolidation and an end to the brutal price war will have a far more pervasive impact on future returns than the prices paid for 3G spectrum.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
