Foreign telecom firms could gain access to India's booming mobile market through a global auction of 3G licenses this year, but low call rates and established players mean it could take years to turn a profit.

Foreign telecoms with 3G experience are allowed to bid at the auctions, opening the way for firms such as AT&T, Etisalat, NTT DoCoMo to gain a foothold in the world's fastest-growing mobile market.

But India's 2G operators, including Bharti Airtel, Reliance Communications, Vodafone Essar and TM International backed Idea Cellular, are not going to cede their territory easily.

"There will be a mad fight," said Madhusudan Gupta, a Singapore-based analyst with research firm Gartner, which sees Indian mobile users rising to 737 million by 2012 from nearly 300 million now, with 20% of those using 3G.

"You have a long queue of foreigners. The potential is enormous in India."

Five 3G licenses will be available for most of India's 22 service zones, although limited spectrum means there will be a maximum of three in large cities such as New Delhi and Mumbai.

Next-generation high-end 3G services give users a chance to enjoy fast Internet access, games and a host of multimedia content from maps to music on their cell phones, areas where 2G has been handicapped by a slower data transfer capability.

India's mobile user base increased by 25 times between 2002 and 2007, but a winning bid will not be a license to print money, especially for a new entrant up against India's cheap call rate model.

Local call rates are less than 1 U.S. cent a minute, and local operators want to implement the same style of model in 3G.

"In India tariffs have to be where Indian tariffs are," said Sunil Mittal, chairman of top mobile firm Bharti. "The idea in India is to provide telecom services at most affordable rates."

3G IS NOT EASY

The low-cost plans will be a challenge given 3G has been associated with high-tariff structure globally, as new operators have to put up billions of dollars for licenses and networks.

India has set a base price of 20.20 billion rupees ($435 million) for a national license. Actual bids are expected to be higher, especially in lucrative centers such as Mumbai and New Delhi, as the government is looking to raise up to $9 billion.

Foreign telecom firms not already in the Indian market will also have to fork out 16.5 billion rupees ($355 million) for a telecoms license, which the existing operators already have.

"It is not going to be a cakewalk. It will be kind of a Catch-22 situation. You will have to spend so much, but you can not pass on in the same proportion," said Gartner's Gupta.

"At the end of the day, price will matter."

Importantly for new entrants, a winning 3G bid does not automatically get a bread-and-butter 2G license.

T.V. Ramachandran, an official at a mobile operators' association, COAI, says new foreign operators will have to look for an Indian partner that owns a 2G network.

"It will be most difficult for pure 3G operators. Otherwise, I feel there will be initial years of losses, which is bound to be there in every business. But as we started late, we have a great advantage."

New 2G licensees such as Unitech, Datacom and Loop Telecom could be targets for foreigners, although Indian policy at present does not allow two 2G license holders to merge their licenses for three years from issue.

Billions of dollars of investment in upgrading or building new 3G network would spell more opportunity for global network gear makers such as Ericsson, Nokia Siemens, Motorola and Chinese firms Huawei and ZTE.

INTERNATIONAL EXPERIENCE

Overseas, 3G has failed to deliver on the hype that often led to frenzied license auctions.

Hong Kong's Hutchison Whampoa has struggled since launching 3G services in Britain in 2003, and Vodafone ended up selling its underperforming Japanese 3G unit to Softbank in 2006.

In South Korea, SK Telecom and KTF have been offering 3G services for more than a year, but high costs associated with subsidies for new phones and marketing has been a worry for 2G market leader SK.

Singapore's three operators -- Singapore Telecommunications, StarHub and MobileOne -- rolled out their commercial 3G services in early 2005, but are yet to turn profitable on their 3G investments, analysts say.

But the COAI's Ramachandran said India's size and growth potential gave it advantages over others. If 10% of users migrated to 3G, that would make a good business case, he said.

"Foreign players have a deep pocket. But clearly the existing Indian operators have an overlay," said Alok Shende, principal analyst at Accendia Consulting.

"But something one should understand. They have the license for 20 years, not for 2-3 years. So it's not that they have to make all the money tomorrow." ($1=46.4 rupees)

Source:Reuters