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India 3G auction ends, windfall for government

India's third-generation mobile bandwidth auction ended Wednesday after 34 days, boosting government coffers by $14.6 billion, as companies such as Bharti Airtel Ltd. and Reliance Communications Ltd. bid to expand their services in the world's fastest growing telecom market.

Bharti, Reliance Communications, Vodafone Essar Ltd. and Idea Cellular Ltd. emerged as the provisional winners in the auction, the Department of Telecommunications, or DoT, said on its website at the end of the auctions, which began April 9.

Tata Teleservices Ltd., Aircel Ltd. and S Tel Pvt. Ltd. are the other provisional winners in the auctions, which lasted 183 rounds of bidding.

"The auction results are provisional and subject to the approval of the government," the DoT said.

"The final list may be announced tomorrow [Thursday]," DoT spokesman Satyendra Prakash told Dow Jones Newswires.

The auctions come as the industry is locked in an intense price war amid stiff competition, which has hurt revenue and profits. The Indian government had put on the block three slots of bandwidth to offer 3G services in each of 17 telecom service areas and four in each of the remaining five areas.

They drew aggressive bidding--described as "over the top" by an analyst--driven by scarcity of bandwidth in the country, which added around 20 million wireless users in March. The additional bandwidth can be used to offer voice services to start with, and high-end telephone services, which typically attract higher rates from consumers, at a later stage.

The intense race drove the bid price for one slot of bandwidth to offer 3G mobile services across the country to 167.51 billion rupees ($3.61 billion), much higher than the INR35.00 billion starting price.

Ernst & Young's telecoms head, Prashant Singhal, said the expectation was for one slot of pan-India bandwidth to cost about $2.5 billion to $3 billion.

However, none of the nine operators bidding won bandwidth for all of India's 22 service areas.

Bharti, Vodafone Essar and Reliance Communications won bandwidth in the lucrative service areas of Mumbai and Delhi, while emerging top bidders in 13, nine and 13 service areas, respectively. They will pay INR122.95 billion, INR116.18 billion and INR85.85 billion, respectively, for the bandwidth.

"We would like to point out that the auction format and severe spectrum shortage along with ensuing policy uncertainty, drove the prices beyond reasonable levels," Bharti Airtel said in a statement. It blamed unreasonable prices for not being able to obtain pan-India 3G spectrum.

Aircel joined Bharti and Reliance Communications among the winners for the most number of service areas, winning in 13 services, and will pay about INR65 billion. Aircel, however, stayed away from the most expensive Delhi and Mumbai service areas, and focused on second- and third-tier areas.

Idea Cellular said it will have a total outlay of INR57.69 billion for the 11 service areas where it won bandwidth.

The excess payouts by the companies are likely to be a drag on their earnings for a while.

Romal Shetty, a telecom analyst at consulting firm KPMG, said the bids will be a "strain on the balance sheets" of operators.

Analysts believe it will be at least two years before 3G services are regularly subscribed to.

"We are estimating a break-even in around the fifth or sixth year," said Abhishek Sawant, an analyst at IndusView Advisors Pvt Ltd.

However, the auctions were a windfall for the government, striving to keep its fiscal deficit under check.

The government said it will garner INR677.19 billion from the auctions, including payments by state-run Bharat Sanchar Nigam Ltd. and Mahanagar Telephone Nigam Ltd.(500108.BY), which were given bandwidth before the auctions but now have to match the winning bids. That is nearly double the INR350.00 billion the government had estimated in its federal budget.

Analysts said the windfall revenue from 3G auctions is likely to part-fund government payouts toward food, fuel and fertilizer subsidies.

Earlier Wednesday, Finance Minister Pranab Mukherjee told the NDTV Profit television channel the incremental revenue won't only offer fiscal headroom but also add to the government's comfort to limit the budget deficit at 5.5% of gross domestic product in the fiscal year started April 1.

The 3G bandwidth auction will be followed by the auction for bandwidth to offer wireless broadband services, scheduled to begin two days after the 3G auctions end.

Источник: Total Telecom

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