Protiviti Consulting Private Limited is an Independent Risk Consulting firm specializing in Business Consulting & Internal Audit. The company has been working with major telecom giants in India and worldwide and has given them advisory services on various IT, governance issues and risk management. In a crisp interview with Convergence Plus, Director of Protiviti Consulting, Mr. Shobit Agarwal spoke on the revenue aspects of 3G services.

CP: What is the approximate pay around time for private players that have successfully bid for 3G spectrum?

SA: 3G spectrum should usher in a better broadband prospect in India. Lower penetration of broadband will help in alleviating the 3G opportunity. Private investors have bid very high for the 3G roll-out services and according to our estimate private players need to gather more than 50,000crore to recover the license fee for 3G spectrum in India. In order to recover the base cost/ license fee, telecom companies have to build up user base of at least 10,000 crore every year. Approximately the pay around time will be 6-7 years if they continue to increase the subscribers.

CP: What is the expected profitability for the telecom operators?

SA: Telecom Operators would need to make Earnings before interest, taxes, depreciation and amortization (EBIDTA) margin of 35%. Further revenue enhancement should be 25 % or more over the current Average Revenue Per User (ARPU) to be able to show reasonable return on 3G project. Accordingly, each operator will have to approach the opportunity specific to each of their circles to achieve such numbers.

CP: How will the market recover after a huge investment in 3G bidding?

SA: There will be an element of uncertainty in the market over the next 12~24 months during which the market develops and operators feel the heat of the additional debt without significant revenue enhancements. Aggressive penetration of 3G in existing base and adoption of 3G services would be imperative for the operators to reflect reasonable returns. This is particularly so as it is commonly shared that some additional spectrum would be used for voice.

CP: What will be the revenue generation model for telecom players?

SA: Operators will have to work innovatively to use the spectrum for higher revenue generation. Various value added services possible on 3G services should come to the market and operators will have to start offering composite packages to primarily increase the interest levels of the subscribers towards 3G. So while voice will be the mainstay, value adds from 3G should be used to enhance revenues, especially in the metros and A class cities which have the highest mobile penetration and are hungry for broadband services.