History repeats itself. Indian 3G licence frenzy mirrors the UK experience of a decade ago

Karl Marx wrote that unless humanity learns from its mistakes it is condemned to repeat them but what was tragedy the first time round is, on the second occasion, revisited on us as farce.

However, what happened in Britain, as mobile operators went barking mad as they vied to get their hands on a 3G licence, was actually as comedic as it ever was tragic. And, it seems, India has learned nothing from one of the most expensive exercises in futility ever undertaken and is running what is basically a carbon-copy of the most vainglorious exercise in excess yet seen in the history of industrial society.

In the UK, operators had allowed themselves to believe that ownership of a 3G permit would, quite literally, be the equivalent of being granted a licence to print money. Expectations were that the population would go mad for premium-priced 3G services and applications and all the operators would have to do would be to sit back and wait for the money to roll-in.

Except of course that it didn't happen. 3G turned out to be much more technologically and technically difficult to do than 2G and 2.5G, promised services and apps were delayed by months and years and when they did belatedly appear they were delicate, etiolated things that fell-over and died with monotonous regularity. Users in their millions declined their uptake and mobile carriers were left with an albatross around their necks and egg on their faces - not necessarily from the same bird.

For years none of them made any return at all on their massive 3G investments and, even today, payback, such as it is, is patchy and partial. The UK operators spent £22.5 billion recklessly on a pig in a poke, and are still paying the price.

And now, ten years on and quarter of the world away in India, history, as the bearded one prophesied, is repeating itself. A new report from Citigroup on the Indian 3G licensing process says it is losing credibility and that the auctions (that began on April 9) are "going beyond rational levels."

As of yesterday, the cash windfall the Indian government will gain from the process stood at £5 billion. That's much more than analysts forecast and the auction remains fraught and irrational.

Mobile carriers in India, which, having overtaken China, is now the world's fastest-growing mobile market, exist in a fevered world of masses of subscribers whose monthly ARPU is minimal and where networks vie for supremacy in a sector and environment dominated by endless price wars, huge churn and great infrastructure expansion and expense.

Currently, India has 12 mobile operators who, between them add millions and millions of subscribers a month to their rolls.

(Fourteen million new customers signed up for mobile service in March 2010 alone).

India is a huge market but to stay in business the later entrants to the game have been cutting prices to the bone. Indian mobile tariffs were amongst the very lowest on the planet a couple of years and more ago but even so, those prices have been cut by a further 20 per cent over the course of the past six months as competition has becomes ever more cut-throat.

It is a model that is unsustainable and consolidation in the Indian mobile market is now a racing certainty. As a Credit Suisse report puts it, “Overcapacity has manifested in tariffs unrelated to economics.”

India has 22 telecoms zones or "circles" and 71 3G licences are being auctioned. You can be sure that soon the Indian mobile arena will echo to the moans and groans of failing players and the triumphant yells of those that have bought-up rivals troubled rivals at knock-down prices.

Another analyst report, this time by Macquarie, says consolidation is both inevitable and desirable. It opines, “Wide- ranging mergers and acquisitions leading to significant in-market consolidation will be needed to restore orderly growth and profitability and we believe that is at least nine months away. Then outlook for near-term earnings growth remains lacklustre.”

The operators are, almost literally, betting their shirts that 3G in India will quickly become a runaway success. Indeed, part of the rationale behind the irrational bidding frenzy is that only the mass uptake of 3G can reinstate the status quo ante that mobile operators enjoyed before the market became so overcrowded with competitors that profit margins were eroded to miniscule levels.

Central to the operator's strategies are plans to market 3G as a route to Internet access for the mass of the population. With some 600 million customers, mobile uptake in India is burgeoning but wired broadband penetration is insignificant. A mere 70 million Indians (out of a population of 1.2 billion recorded as of 2008) have Internet access.

However, whether or not the population will move en masse to access the web via 3G handsets will depend entirely on the price of service. The handsets themselves will cost more than the average Indian will be able to afford while the tariffs for services and applications, although no doubt cheaper than in many other parts of the world, will have to be pitched very low indeed if they are to be taken up in the huge numbers necessary for the operators to make a return on their investment in infrastructure and the insane premiums thay are paying to get a service licence.

What's more, the Indian government is pressuring mobile operators to use at least part of the 3G spectrum they might be awarded to improve the frequently poor quality of voice services being carried on India's overcrowded and stressed 2G networks.