Indian consumers will have their tryst with 3G telecom services in the next six months, with the Department of Telecommunications (DoT) announcing that it is issuing state-owned Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd [Get Quote] (MTNL) spectrum to roll out all-India services. 

3G or third generation services offer consumers internet access at speeds that are at least 30 times faster than 2G. 

The move will give the state-owned corporations a four-to five-month head-start in the 3G space over private sector rivals.

The government, which announced the broad guidelines of the 3G policy today, said details of the auctioning of spectrum - radio frequencies that enable wireless communications - and the number of players allowed in each circle will be finalised within four months. 

The state-owned corporations, for which spectrum has already been reserved, will have to match the highest bid after the auction for private companies is completed.

Announcing the new 3G initiative, Communications Minister A Raja said: "We expect to earn Rs 30,000 to Rs 40,000 crore through this 3G auction."

BSNL Chairman Kuldeep Goyal added: "We will roll out an all-India 3G network in six months starting from the north and east." The company has placed orders for equipment and said 25 per cent of the 40 million-line GSM order is for 3G services. 

Industry experts predict 45-70 million 3G customers by 2012, roughly 10 per cent of the mobile customer base. New players that win bids will, however, have to pay additional cash (Rs 1,650 crore for an all-India 3G licence) for mandatorily taking a universal access service licence (UASL) also.

The industry is divided on today's announcement. "The government's plans to allocate additional spectrum should ensure the fullest possible breadth of competition in 3G services," said T V Ramachandran, director general, Cellular Operators Association of India, which represents GSM mobile operators.

"This will surely push our valuations up since new players who win bids for 3G, will have to tie up with us for 2G," said Mahendra Nahata, a shareholder in all-India licence-holder Datacom Solutions.

But new players interested in entering the country (AT&T, Sprint and some West Asian telcos) said the guidelines will make it unviable for them until they also get 2G spectrum simultaneously. 

"You can't sustain a business in which 10 players are fighting for only 70 million 3G customers. You need a mass consumer base of 2G subscribers to survive, so getting 2G spectrum with 3G is essential," said a senior executive of a telco with plans to enter India. 

Although new players have to pay more for a UASL, there is no guarantee that they will get the 4.4 MHz start-up 2G spectrum that comes bundled with the licence because such spectrum is in short supply.

Also, a new player would need $3 billion to $3.5 billion to roll out a 3G network from scratch. A 2G incumbent can roll out 3G operations for half the cost, giving it a huge competitive advantage.