The last several weeks saw large scale betting for the war in Indian telecom spectrum for 3G, eventually raising over US$14 billion. The result is that not one single 2G operator actually got pan-India spectrum for 3G, and now there is a mish-mash of overlapping circles, based on the bidders’ perceived value of those circles.

Following this was another market-shaking auction for BWA spectrum that ended just last week, resulting in a complete makeover of the wireless broadband sector. Infotel Broadband Services, a virtually unknown entity, became the sole winner of pan-India 22 circles of spectrum for BWA. Within 12 hours, US$44.6 billion Reliance Industries Ltd. re-entered the Indian telecom market with a US$1 billion investment to obtain a 95% stake of Infotel. Reliance Communications (RCOM), the CDMA and GSM cellular operator run by Mukesh Ambani's brother Anil, was actually started by Mukesh 10 years ago (he brothers separated following a family feud in 2005).

The market is abuzz with several possibilities in terms of whether Reliance, and the sector in general, will move toward deployng either LTE or WiMAX. While there are several possibilities, here is an unaudited view of life  in India's fast-changing information highway: 

• The Indian telecom landscape is about to change forever and finally there is hope for broadband, a baby no one wanted to nurture - with currently only 9 million broadband subscribers.
• Reliance Industries has established ample credibility as the company that understands ‘scale,’ having built global scale oil refineries, power and chemical plants in record time. The BWA spectrum auctions have all the trappings of a typical Reliance play: a single player wins the pan-India BWA spectrum and Reliance acquires the company for a US$1 billion. Indian broadband needs a Mukesh to turn things around!
• The other Reliance – RCom ADA, with its brand new 3G licenses in select circles, a nationwide CDMA plus GSM combined subscriber base of over 100 million, large broadband assets of fiber and content, a gaming business, DTH, and multi-media studios, is bringing in fresh investors, and could list the tower business (valued currently at over US$5 billion) to raise additional capital. While RCom has built up strong domestic and international bandwidth play (RCom owns FLAG and other undersea/offshore transport assets), the operation has been saddled with too much debt. Two weeks ago, RCom board approved 26% dilution in stake to attract new investors and offload some debt.
• Reliance Industries may actually go with WiMAX initially, while getting its LTE solutions ready to ship. While it is too early to speak of real LTE deployments, Reliance would never wait for a technology to mature in the labs while it has already paid for spectrum upfront. Historically, Reliance walked the Qualcomm talk along the CDMA path, but eventually had to abandon the technology to move to GSM two years ago. Once bitten, Reliance will likely make double-sure this time that its broadband pathway is well-paved.
• A strategic relationship between the two Reliances could create permanent barriers for everyone else as the virgin broadband sector could end up becoming the brothers’ game plan for building the next global megacorp in telecom! There is already word of totally new business model: Reliance could skip monthly rentals and tie-in content based pricing from anything like $0.02 per view of the latest cricket score or a Bollywood number, thus expel the swarm that inundates local Television showrooms during games and have individuals watch their favorite stars on their handhelds! This is exactly what Reliance did ten years ago when CDMA phone service was launched.
• Voice business as we know it is heading south with low ARPUs and high spectrum prices forever taking away the opportunity of just staying alive in this business. For the 5MHz 3G spectrum winners, their selective circles may or may not promise much solace as even the big players have not won pan-India licenses. However 3G licensees with no BWA will probably find it even more challenging as they juggle small spectrum spreads, poor capacity and demanding customers.
• Qualcomm will look for partners to deploy their favorite gear in the 4 winning circles. Of course it would be those who would commit to their roadmap of evolution to 4G, likely some of those who did not make the BWA bids such as Tatas or Vodafone. Or could this be a lifeline to some of the entirely new operators who did not play the 3G rounds? For now, partners seem to be infrastructure player GTL and Tulip, India’s tech-neutral wireless ISP.
• Some claim the last bastion for WiMAX may have fallen, but perhaps it is too early to close the books. One shouldn’t forget that while the spectrum fireworks is closing down, the only player who has truly hit a home run is the government, having generated over US$23 billion in fees. Will operators manage to survive in this camp, and generate enough cash to come out of this intensive investment race? Even if these operators attain investment milestones, will they have the appetite for the next 6-7 years to battle it out to win this race? In the meantime WiMAX CAPEX comes at a fraction of the cost of LTE infrastructure, assuming the latter is ‘India ready’ in 2 years. ‘India ready’ means technology should be functional, ready to deploy at rock bottom prices, and deployable in large volumes. It took GSM technology years to be ‘India ready’!

In India, with less than 1% broadband penetration, there was always a need for a broadband revolution. Until now, the main complaint seemed to be concerning the lack of spectrum, but everything else was ready: investors, operators, content, consumers and enterprises. Now suddenly there is a mixed feeling in the air.  Spectrum winners are worried if they are stretched too thin, and those who didn’t make it are worried whether they should have been more aggressive.

For more information, contact the author at info@maravedis-bwa.com

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