The fiercely contested 3G spectrum auction between the nine mobile operators including Bharti Airtel, Vodafone Essar, Reliance Communication (RCOM) and Tata Teleservices Limited (TTSL) continued into Day 30 as we went to press. Surpassing all expectations, even those of A. Raja, minister for communications, who had predicted that the government would get Rs 500 billion-Rs 550 billion from the 3G and broadband wireless access (BWA) spectrum auctions, the government (as on date) is looking to rake in at least Rs 639 billion, with the bid price for a national 3G mobile licence crossing a staggering Rs 158.14 billion.
As the auctions draw to a close, the government, as the common refrain in the industry goes, will be the biggest winner. It was hoping to accumulate revenues worth Rs 350 billion from the sale of 3G and BWA spectrum based on the floor price for Rs 35 billion for a 3G licence. Now it will be making twice the initially estimated amount.
Delhi leads among the circles, attracting Rs 30.33 billion, followed by Mumbai at Rs 29.99 billion. Karnataka is third with a bid interest of Rs 15.64 billion, followed by Tamil Nadu with a bid price of Rs 14.65 billion and Maharashtra with a price of Rs 12.45 billion.
Trailing these are Gujarat (which held high interest earlier), Uttar Pradesh (West) and Kolkata at Rs 10.44 billion, Rs 4.89 billion and Rs 4.88 billion respectively. Interestingly, Orissa, the Northeast and Uttar Pradesh (East) are among the Category C circles that are still witnessing a good deal of activity.
In this fight for crucial airwaves, the one thing that analysts are certain of is that the 3G prices have far exceeded all realistic targets set by operators prior to the bidding process. “The maximum price escalation has happened in the metros and a couple of Category A circles. The bid price has already crossed $2 billion. It is become more of a defensive strategy that the operators are being forced to adopt because they cannot afford to lose their top-end subscribers,” declares Kunal Bajaj, partner and director, Analysys Mason.
As Shubham Majumder, regional head, telecom research, Asia Pacific, Macquarie Capital Securities, puts it, “3G spectrum is a strategic asset and has to be looked at in conjunction with the fact that the life of the concession is 20 years. The incumbents cannot lose at any cost because there is no clarity on when the second round of 3G spectrum allocation will take place, the cost at which it will come through and the spectrum acquisition or trading rules that are in place at that time.”
However, analysts also point out that such high bids will impact operator balance sheets adversely. Besides, funds will be required to participate in the broadband auctions and in rolling out 3G networks. Operators agree that, given that the auctions are still continuing and the funds availability is finite, it will stretch even the deepest pockets. To finance the auctions, Bharti Airtel had put aside Rs 80 billion of its own reserves with options of additional funding. Vodafone Essar had kept aside Rs 100 billion while Idea Cellular and Tata Teleservices had secured loans of Rs 95 billion and Rs 85 billion, respectively.
“3G clearly looks like a classic winner’s curse situation where operators cannot afford to lose the auction but getting the spectrum will leave a scar on their balance sheets,” observes Majumder.
Some analysts also feel that the way the auctions are panning out, the chances of having a single winner with operations in all 22 telecom circles seems slim. In all likelihood, most of the operators, and especially the new ones, will be content with spectrum in only the key circles. However, Romal Shetty, telecom analyst at KPMG, “The incumbent operators will still vie for pan-Indian 3G airwaves, while smaller and newer players will concentrate on specific circles.”
In the final analysis, the fight will be only in the top circles, which will be divided amongst the big three or four operators.
Meanwhile, satisfied with the way the 3G auctions are headed, the Telecom Regulatory Authority of India (TRAI) recently recommended that operators holding more than 6.2 MHz of 2G spectrum would have to pay a one-time fee determined on the 3G spectrum prices. This was all that was needed to stir a hornet’s nest, because, if implemented, it will seriously impact existing operators like Bharti Airtel, BSNL, Idea Cellular and Vodafone Essar. According to Goldman Sachs’ estimates, Bharti Airtel alone would have to shell out $1.13 billion and Idea, about $716 million.
Existing operators with excess spectrum are, naturally, up in arms. In press statement, Bharti Airtel said, “It seems that the recommendations are designed to punish efficient and performing operators like us for contributing to the growth of the Indian telecom sector and are instead tailor-made to benefit select operators whose contribution to telecom growth and government revenues have been negligible.”
The telecom industry is looking at interesting times ahead. How the situation will pan out for operators who win the 3G spectrum, who will kick off services the fastest, and how will competition pick up are some of the questions that are keeping analysts, operators and vendors busy and waiting.
