42. In February 2014, the Government of India auctioned wireless spectrum in the 900 MHz and 1800 MHz bands that can be used to provide voice, 3G and 4G services. The largest and next largest mobile telecommunications operators, Bharti and Vodafone, each bought 900 MHz licenses in the key cities of Delhi, Mumbai, and Kolkata. Vodafone spent 196 billion rupees (US$3.1 billion) to replace licenses that would have expired in November. CEO of Vodafone India, Marten Pieters, commented, "The auction has raised over 61,000 crores [about US$10 billion] for the government, but much of this will end up as debt on the balance sheets ... high industry indebtedness will hurt operators' ability to invest in the rollout of new technology and invariably result in higher prices and reduced service levels". a) How would the purchase price of the licenses affect the fixed and variable costs of providing telecommunications services? (5 points) b) Suppose that Vodafone faces a linear demand for telecommunications services in Delhi. At a price of 2000 rupees per month, the number of customers is zero. At a price of zero, the number of customers is 5 million. Draw the demand curve. (5 points)

c) Suppose that the marginal cost of service is 100 rupees per customer. Using a relevant figure, comment on Mr Pieters' assertion that high debt would "invariably result in higher prices". (10 points) d) How does your answer in (a) depend on whether the government of India allows the telecommunications operators to resell their licenses? (10 points)