3G Spectrum bidding marathon comes to an end-Rs.16,800 crores-Service will be started by Sep 1st, 2010-Keyplayers Reliance-Bharti Airtel-Aircel-Vodafone, Tata, Docomo

Finally the 34 days long and stressed process of 3G Spectrum Auction comes to an end with amount of Rs.16,800 crore. It is five times of the reserve price of Rs.3500 crore.

The successful bidders will get the service available from September 1^st, 2010.

All the successful bidders has to pay the amount within 10 days from now.

We believe that, for 3G investments at this level by any operator to be value-accretive, the operator will need to garner a total of 2.5 crore 3G subscribers by the fifth year, and charge an ARPU (average revenue per user) premium of 35% over 2G services.

In our view, 3G services would be margin-dilutive in the near term, but could eventually lead to a significantly higher margins. Over the longer term, we believe that the availability of 3G spectrum can be a game-changer by catalysing consolidation in the telecom industry.

To gain an edge over others, we believe players will gradually leverage 3G technology and provide differentiated value-added services such mobile TV, videoconferencing and high-speed internet browsing.

The benefits of 3G spectrum will become even more pronounced once mobile number portability (MNP) is implemented. The presence of 3G offerings will allow operators to retain their premium subscribers and attract subscribers from competing networks; ARPUs for these subscribers are nearly four times the industry ARPUs, resulting in significantly higher profitability.

Net margins of operators that have acquired 3G spectrum will be strained over a longer period of three to four years. This will be because of increased capital charges (the interest outgo on account of debt raised for 3G network rollout, and the amortization of 3G spectrum charges). This would place additional pressure on operators’ bottom lines, especially for relatively small players.

As no single telecom layer acquire the rights for 3G spectrum, there always remains a healthy competition with different range of services. With this, number of players in the mobile services sector could well reduce to around eight to a circle, from the current level of 10-12.

Sources: Economic Times, Google, Yahoo, Hindu