Is it really an auction for 3G licenses or is it an auction for the ultimate barrier?

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Mobile phone companies have recently started placing bids in the auction for India’s 3G phone licenses with the government likely to receive over $8 billion in the process.

3G technology provides users with the ability to download content such as music and internet pages at higher speeds.

There has been a dramatic increase in the number of mobile phones in India over recent years with the number of phones sold increasing from 35 million five years ago to 130 million last year.

This is going to be an interesting auction but what exactly will they be bidding on?

Most people will say that they are trying to buy a 3G mobile license but students of Porter’s 5 forces will argue that they are in fact buying a barrier to entry. One of Porter’s 5 forces is “Potential Entrants”. A key element in connection with this force is the concept of barriers to entry. As the name suggests these are barriers that can either prevent or make it difficult for new entrants to enter a particular market.

The 3G licenses are great examples of barriers to entry as without the license it is simply not possible to enter the 3G mobile market. The license is the ultimate barrier.

In summary therefore, surely the headline should be “Companies in bids for barrier to entry”?

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