MUMBAI, INDIA: Rating, research, risk and policy advisory company CRISIL Research believes that 3G spectrum would provide operators the immediate benefits of easing the spectrum crunch that prevails today.

In the long run, operators would be able to differentiate their offerings, which would not only aid them to retain premium subscribers but also attract others from competing networks, the Standard & Poor’s company officials told media here on Monday.

According to CRISIL Research director Nagarajan Narasimhan, India’s 3G spectrum auction was different from countries like the UK, USA and Australia; however, the bidding amount accumulated by Indian government is five times of the reserve price while UK and Germany had received eight times the bid amount.

“Globally, though operators have received around 10-15 MHz per service area, in India it’s about 5 MHz,” Narasimhan said. He reckoned as the 2G services ARPU are declining due to fierce competition, incumbent operators are faced with network congestion on their existing 2G networks.

Commenting on the bidding, Narasimhan said each of bidder has followed a selective bidding approach, different from the other keeping in view choice of number of circles, the revenue share per circles and subscriber share of circles. “None of the telcos have bid for pan-India circle during the auction,” he noted.

However, the research firm viewed that after the 3G roll out the total subscribers would reach around 850-900 million by 2014-15 and out of the total subscribers about 12-14 per cent would be 3G subscribers.

According to CRISIL Research head Manoj Mohta, the operators which have the existing 2G spectrum, and also have won bid for 3G, would see a gradual improvement in their profitability margin.

“ARPU on 2G will improve once the subscribers start to move to 3G-based high value services like data and rise in profitability will come from data services over long term,” Mohta said. He opined, initially the operators would focus on improving voice services using the 3G as it would overcome the issue of congestion and later focus on data services.

Further, the rating agency in its outlook expected that the telcos would see an improvement in EBDITA margins by 500-700 basis points with 3G services over the 2G services but pointed out that the Indian telecom sector would witness consolidation over next 18-24 months.

“Intra-circle merger and acquisition will be a possibility between large and small players with the existing regulatory policies as per which the market share of player in a circle shouldn’t exceed 40 per cent and post merger the combined entity shouldn’t hold over 15MHz in one circle,” Mohta explained.

With mounting operational costs and marketing pressures due new players and market competition, the 2G profitability will fall by 700-750 basis points over the next five years, according CRISIL Research.

Moreover, for full-fledged rollout of 3G services, the agency expected a huge investment of Rs.. 2.6 crore lakh over the next five years. The number of mobile towers will increase by 30 per cent and expected to reach around 4 lakhs by 2013-14.