The cost of a national 3G license in India has topped 60 billion Indian rupees (US$1.3 billion) on the eighth day of the auction of 3G (third-generation) spectrum in the country.
The total price for all 22 service areas in the country for which the auction is being held reached 60.68 billion rupees on Monday, the eighth day of the auction, according to India's Department of Telecommunications.
The indications are that the final costs of the licenses at the end of the auction could be far higher, putting pressure on bidders to come up with a pricing model that is attractive to customers while also helping operators recover their costs, analysts said.
"It may be a difficult model to sustain given the cost-conscious nature of the Indian consumer, and the lack of an immediate business case for 3G beyond just data access," said Kamlesh Bhatia, a principal research analyst at Gartner.
3G in India is not for the masses right now, and will initially start of as a niche, premium market, he added.
The 3G business in India is for operators with deep pockets and the staying power to wait for the market for 3G services in the country to take off, Bhatia said.
India started an online auction of 3G spectrum from April 9, to be followed two days after the auction is complete by the auction of spectrum for broadband wireless access (BWA).
In a complex auction process adopted by the government, bidders are in each round asked to accept or reject an increased price proposed by the auctioneers.
Bidders move from one round to the next, as they accept the new incremental price proposed. 46 rounds were completed by Monday. The procedure prevents predatory pricing, collusion, and better helps price discovery, the government said.
The auction for 3G spectrum has nine bidders, all of whom are existing mobile operators in the country, including the largest player, Bharti Airtel.
For the large Indian operators like Bharti Airtel and Vodafone Essar, the Indian joint venture of Vodafone, the 3G auction provides an opportunity to get more spectrum, at a time when they are running out of 2G (second-generation) spectrum, Bhatia said. They will probably migrate some of their current customers to 3G services, freeing up 2G spectrum, he added.
For 3G services, the government has decided to auction three blocks of 5MHz of paired spectrum in the 2.1GHz band in 17 of the country's 22 service areas, with four blocks up for bidding in the remaining five service areas.