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As the ongoing spectrum auction in India raises the cost of a nationwide 3G license past US$3 billion, commentators are beginning to wonder whether mobile operators will be able to make a respectable return on 3G deployments in the world’s second most populous country.

The more India’s mobile operators have to spend on spectrum, the less they will have to invest in 3G networks. And yet they will have to invest heavily. Last week, the CEO of India’s largest operator highlighted that parts of India’s current networks are far from ready for the potential flood of traffic that could be generated by HSPA-enabled smartphones and dongles, which will likely be the primary form of Internet access for most Indians. Speaking to financial analysts at Ericsson’s Capital Markets Day, Manoj Kohli of Bharti Airtel said: “The biggest constraint could be backhaul capacity… very few [base station] sites are touched by fibre-optics.”

Kohli said a lot of sites in the major towns will have to have their microwave backhaul links to the operators’ core networks upgraded to fibre cables. That will be expensive, as digging up trenches to lay cables is obviously a costly and time-consuming exercise. Of course, wherever possible, India’s operators are likely to try and get away with using new high-capacity, microwave (wireless) technologies. As Kohli pointed out, established microwave vendors, which include Ericsson, Alcatel-Lucent, Nokia-Siemens Networks, NEC and other big players, are all working on such solutions.

Scope for start-ups?

But the huge amount of backhaul capacity in developing markets that is going to need upgrading suggests there is still room for start-ups, such as Siklu Wireless, to make an impact. (Siklu reached the final round of the Grand Prix tournament of the GSMA’s Innovation programme). Bharti alone has more than 100,000 base stations across India, so there should be ample scope for piloting new wireless point-to-point links in both rural and urban locations.

At the same time, start-ups may find it difficult to break into ultra competitive markets, such as India, as the local operators try to hammer down costs by outsourcing their network management to the big equipment vendors. Bharti and Ericsson entered into such an arrangement in India more than five years ago. Kohli says his company increasingly just pays per erlang of voice capacity and per megabyte of data capacity, rather than grappling with the details of network design. Bharti, which is acquiring the African operations of Zain, is looking to adopt the same model to drive down costs in Africa.

But India, where mobile tariffs are among the lowest in the world, remains a special case. While a vendor running a network on behalf of a mobile operator will obviously be inclined to use its own microwave solutions, they will also come under intense pressure to find a way to radically lower the cost per megabyte of backhaul transmission, especially if the price of 3G licenses in India rises much further. Yesterday, India’s Economic Times newspaper quoted KPMG telecom analyst Roman Shetty as saying: “We are 100 percent positive that the current 3G prices have exceeded the realistic targets set by operators prior to the bidding process.”

Moreover, Kohli made it clear that both Bharti and Ericsson have long been using India as a test-bed for new ideas. “I can tell you this is the toughest job the Ericsson optimisation team is doing in the world,” he said. So, any entrepreneur with low-cost, high-capacity network gear should be spending a lot of time in India right now.

 

David Pringle

This article was first published on the GSMA’s Mobile Innovation Exchange. David moderates discussion forums on the site and is a freelance media and investor relations consultant.

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members