India's 3G licence bidders bank on big changes

There has been a massive growth in mobile phone usage in India in the last five years

By Shilpa Kannan
India Business Report, BBC News, Mumbai

India is one of the world's fastest growing and biggest mobile phone markets. And Friday sees the start of the much-delayed auction in which the government is going to sell-off the latest set of third-generation phone licences.

The sale is expected to attract nearly $8bn (£5.2bn), a welcome cash injection for a government trying to cut its spending deficit.

Nine telecom firms will compete for four national and 22 regional licences. Out of these, six applicants - Bharti Airtel, Reliance Communications, Vodafone Essar, Tata Teleservices, Idea Cellular and Aircel - are bidding for all-India spectrum.

While Videocon Telecommunications, S Tel - partly owned by Bahrain Telecommunications - and the Indian arm of Emirati firm Etisalat will bid for only selective zones.

The long-awaited auction comes at a time when the telecom market in the country is seeing robust growth in subscriber numbers and operators are involved in a fierce price war to try and capture mobile users.

Phone companies are betting that the new services could help boost sales and demand further.

But it's not just about making calls, third generation spectrum could open up the market for a whole host of services -like financial services on the phone.

Banking on mobiles

As he hands out yet another cold drink on a hot summer day in Delhi, 28-year-old Dharmender Kumar constantly has his eye on his mobile phone.

Once 3G is introduced it can exponentially change the way our service operates and it can ease this process of financial inclusion Entrepreneur Anand Shrivastav

For this shopkeeper - the text messages on his constantly-beeping handset mean business. His is not just a regular corner shop, you don't need cash to buy a soda here - all you need is a mobile phone.

Both the shopkeeper and the customers use a payment service on their handsets called the Beam mobile which allows paper-free financial transactions.

Customers can buy credit as low as 10 rupees (15 pence; 23 US cents) and use it for small or big payments, or even to send money to others.

Kumar says he has nearly 100-such customers in the locality.

"My customers are mainly poor people who don't have access to a bank account. They put their monthly earnings into a mobile phone and then use the phone to make payments or buy things.

"This way the money stays safe and they don't have to worry."

It's not just about ordering a pizza at home or buying movie tickets, mobiles are often the only banking services available to poor people.

Customers currently have to buy a card to use the services - but if the country introduces third generation spectrum as planned, the transactions could change dramatically, says the man behind the service, entrepreneur Anand Shrivastav.

"Right now, customers need to send text messages to transact but when we have access to top third generation spectrum- the payment can all happen on the mobile phone screen. Everyone will benefit.

"The vendor you see on the side of the street can order his supply of colas or crisps directly from the company producing it via his handset. The need for middlemen can be eliminated.

"Once 3G is introduced it can exponentially change the way our service operates and it can ease this process of financial inclusion," he says.

High-speed change

The 3G mobile services will allow high-speed content downloading and broadband services on handsets.

Bidders are hoping customers will pay for more services on their mobiles

According to the Indian Cellular Association, the total number of mobile phones sold in India jumped nearly 300% over the last few years, from 35 million in 2005 to 130 million in 2009.

Of those, only five million were smart phones. But high-end handsets sales are expected to go up because of the new services.

The biggest operator in the country, Airtel, recently announced tie-ups with Apple to sell the iPhone 3GS and with HTC to sell their Smartphone in the country.

Atul Bindal, President of Mobile Services at Bharti Airtel, says that they are ready for the services when they roll out.

Similarly another operator, Aircel has tied up with UK-based handset maker INQ to sell their social networking-enabled phones. One of the two handsets launched is 3G-enabled.

INQ Mobile, a unit of Hutchison Whampoa makes handsets aimed at the younger generation of users with easy access to social networking sites and email among others.

Chief executive and founder, Frank Meehan says he expects a good response to their phones in the Indian market as more than half the country is under 25 and increasingly using devices like Facebook, Orkut and Twitter.

The successful bidders would be allowed to offer 3G services on a commercial basis from 1 September, 2010.

When 3G services eventually begin to roll out in the country, the simple phone will potentially mean internet on the go for any consumer.

And with more than 15m users joining in every month, no-one's hanging up on the Indian telecom story just yet.