Impact of 3G auction on MTNL and BSNL

by Sharon Lobo    Apr 26, 2010

The 3G auction is finally underway and by the end of it the Government plans to rake in about Rs. 45,000 crore. While private telcos such as Airtel, Vodafone, Idea, Aircel, Reliance, Tata and others fiercely bid for the 3G spectrum and the price continues to rise, the question remains as to what will be its implications on MTNL and BSNL. Both these state-owned operators were given a head start by the government in the 3G space by allotting the required 3G spectrum, on the condition that each will have to pay an amount which will be equivalent to the highest bid in the respective service areas as and when the 3G auctions take place.  

Now there are no prizes for guessing that both MTNL and BSNL have not exploited this opportunity as private players would have. Firstly there were months of delay between the announcement of the 3G service and the actual launch of the service by the duo. Post launch the services were not available in the entire service area and wherever available it was not consistent.

Now with the base price on the 13th day of the 3G auction reaching close to Rs. 7,900.48 crore, it will be no small feat for the state-owned operators to cough up such an amount.

The woes of these operators do not end here as they struggle to retain their existing subscriber leave alone adding newer ones. In addition, the sword of MNP (Mobile Number Portability) hangs over the duo as both have nothing much to boast about on the service front.

The 3G auction will have a greater impact on MTNL as it operates in two of the most lucrative telecom circles — Mumbai and Delhi. Private operators entering the 3G fray would not want to lose these circles, as a result the bid amount till date for these circles is the highest. According to news reports the bid amount for Delhi circle is currently at Rs. 1083.27 crore, while Mumbai’s is at Rs 1,079.93 crore. These amounts, which add to Rs. 2163.2 crore is more than 10 times that MTNL’s net profit for FY 2008-09, which was pegged at Rs. 211.72 crore.

If the collective bid amount of Rs. 2163.2 crore of Delhi and Mumbai’s is deducted from the total — Rs. 7,900.48 crore — we get Rs. 5363.2 crore, an amount BSNL will have to cough up as the 3G license fee. This amount is more than 9 times that of BSNL’s net profit for FY 2008-09, which was reported to be at Rs. 574.85 crore.

This does no paint a rosy a picture — either for MTNL or BSNL. Also with the entrant of the newer players in every circle, the profits of every existing operator have taken a beating.

Another concern for MTNL and BSNL will be the severe price competition they will have to face on the 3G front once the winners of the bid are allotted the required spectrum. Even though both the operators have launched attractive 3G tariffs, it is only a matter of time to see how much they manage to succeed in this endeavor.

With this 3G auction both the state owned operators, which once prided themselves for offering low call rates, seem to be entering murky waters. Unless they pull up their socks and bring about a drastic change in their attitude towards customer satisfaction.