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Limited 3G auction raises fear of fierce bidding

NEW DELHI: The government’s decision to limit the auction of third generation spectrum to just one block of 5 Mhz has exacerbated the telecom industry’s fear of fierce bidding, which could worsen the sector’s already-high debt position by inflating it beyond Rs 3 lakh crore.

“Lack of 900 Mhz frequency was already a matter of concern, now artificially limiting the supply of 3G spectrum might result in high auction proceeds but it will hurt the industry,” Rajan Mathews, directorgeneral of Cellular Operators Association of India (COAI), toldET.

On Monday, the government said it will sell 85 Mhz of spectrum – 5 Mhz each in 17 circles – in the 2100 Mhz band, used for 3G high-speed broadband services and which the defence ministry has agreed to free up for commercial use. The quantum though is far lower than the 330 Mhz – 15 Mhz each in 22 circles – that the industry had expected. No telecom operator has pan-India 3G operations. Bharti Airtel, Reliance Communications and Aircel offer 3G services in 13 telecom zones, Idea cellular in 11 and Vodafone, nine. All are desperate to increase their 3G footprint as the next round of growth in the sector is expected to come from data services.

The current scenario could lead to irrational bidding as operators don’t yet know when the government will next auction additional 3G airwaves, Mathews said. “This in a way does create artificial scarcity and could make the bidding very fierce, increasing the final price by as much as 50%,” said Prashant Singhal, global leader of telecom at EY. The Telecom Regulatory Authority of India (Trai) has fixed the reserve price of a pan-India block of 5Mhz of 3G spectrum at Rs 13,600 crore, or Rs 2,720 per Mhz.

While the Cabinet has to make a final decision on the 3G spectrum price, on Monday it ratified the reserve price for 99.2 Mhz of spectrum in the 1800 Mhz band in 15 circles and 177.8 Mhz in the 900 Mhz band in 17 service areas, for 2G services by GSM operators. It also cleared auctioning of 103.75 Mhz in the 800 Mhz band, which is also considered as 2G frequency but used by CDMA carriers.

“The estimated revenues from this auction (of 2G bandwidth) are Rs 64,840 crore of which Rs 16,000 crore is expected to be realised in the current financial year.” Including 3G, the government expects a minimum of Rs 80,000 crore. The telecom regulator in its recommendation on the reserve price of 3G spectrum had mentioned that the government must auction the 15 Mhz of 3G spectrum which the defence ministry had agreed to swap with it.”For business continuity and considering that data is growing exponentially, very aggressive bidding can be expected in the forthcoming auctions,” Hemant Joshi of Deloitte Haskins & Sells said.

According to COAI data, the current debt levels of the industry are at an all-time high of 2.5 lakh crore. “With fierce bidding, an operator will obviously not be able to invest more in upgrading the wireless networks. They only have as many resources available,” Mathews added.

Sunil Tirumalai, research analyst at Credit Suisse, has criticised the government for following a revenuemaximising strategy at the expense of the telecom industry’s health. “The decision to delay the release of the larger chunk of 2100 spectrum clearly shows a commercial approach of maximizing asset values by not supplying all spectrum at once,” he said.

For the 900 Mhz band – which is used for 2G but can carry 3G as well – the government will put up 177.8 Mhz of airwaves for sale in February in 17 service areas. All the spectrum being put to auction is coming through licence expiry of telecom operators without any fresh airwaves in this band available. Hence, operators such as Reliance Communications, Vodafone and Idea could see as much as 27%, 18% and 15% of their revenue, respectively, getting wiped out, based on data from the sector regulator, if they don’t win back their airwaves.

Idea faces permit renewals in nine circles (must win in four where it doesn’t have any other airwaves to fall back on), RCom and Vodafone in seven each (must win in four each) and Bharti Airtel in six (in two, it doesn’t have any other spectrum).

Source: ETTelecom

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