Sucheta Dalal :Pan-India bids for 3G double in just 11 days; no buyers for ‘C’ circles
Sucheta Dalal

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Pan-India bids for 3G double in just 11 days; no buyers for ‘C’ circles   

April 23, 2010

The pan-India licence fees for 3G have reached Rs6,967.55 crore on the 11th day at the end of the 64th round on Thursday, which is almost 99% from the base price of Rs3,500 crore. With this, the Indian government can garner a minimum of Rs50,000 crore as spectrum licensing fees. However, the auction is still not over. Earlier, the bidding was expected to get over in two weeks, although there is no time limit for the same.


“A lot of mixed response has been seen in the 3G auction space. On one hand, there has been aggressive bidding in certain metros and ‘A Circles’, while on the other hand, there has been lacklustre response in ‘B’ and ‘C’ circles. We expect the final price to settle within the $2-billion mark,” said Sangeeta Tripathi, research analyst, Sharekhan Ltd.


Given the supply-demand mismatch (for three 3G spectrum slots) and its importance from a long-term growth perspective, we expect significant overbidding to take place. “We expect the auction amount to reach Rs80,000 crore compared with the base price of Rs35,000 crore at a pan-India level. We expect all the leading operators to strive to get 3G spectrum in most of the key circles such as ‘Metro’ and ‘Circle A’ areas. Failing to win 3G spectrum in these areas could place them at a disadvantage versus competing players. As a result, operators will likely end up bidding aggressively, incurring higher cash outflows," said Ambit Capital Pvt Ltd, in a research note.


Telecom minister A Raja told reporters that with the reserve price increasing 99% over the base price, the government expects to raise Rs50,000 crore against the budget estimate of Rs35,000 crore. The government has set itself a target of Rs35,000 crore by selling 3G spectrum and broadband and wireless access (BWA) services.


While ‘Metro’ and ‘Circle A’ areas continue to attract higher bidding for 3G spectrum, circles in the ‘C’ category failed to match the pace. In fact, for circles like Orissa, Assam and Jammu & Kashmir there is not a single bid yet. The main reason for this trend is lower average revenue per user (ARPU) as well as lower minutes of usage (MoU) in these circles.


In ‘Circle C’, there are six regions—Himachal Pradesh, Bihar, Orissa, Assam, the North-East and Jammu & Kashmir. Out of these, there are two bids each for Himachal Pradesh and the North-East region, while there is a single bid for Bihar at the end of the 64th round on the 11th day of the e-auction.


“Typically, uptake and graduation to 3G services requires enabling infrastructure in terms of
3G-enabled handsets. The market size in terms of graduating to 3G handsets is not very robust in ‘C’ and certain ‘B’ circles, and hence the players are not very positive on these circles and so the low interest,” said Ms Tripathi.


The 3G spectrum will help operators to provide high-speed Internet and data services on their networks to high-value post paid or corporate subscribers, which could translate into higher ARPUs for the operators. "3G spectrum will also increase the bandwidth significantly, which will help operators to overcome the spectrum crunch they are witnessing in high-density urban areas. In this context, it becomes critical for incumbents to win 3G spectrum in ‘Metro’ and ‘Circle A’ areas,” said Ambit Capital Pvt Ltd in a research note.


According to the pre-qualified bidders’ list, six leading operators are bidding at a pan-India level whereas three new entrants are participating in the bidding only in select circles. As a result, there are more than six operators competing for three 3G slots in most of the circles.


This is apart from State-run telecom services providers, Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL). However, both MTNL and BSNL will have to pay the licence price equal to the winning bid. In any circle, if the winner has to pay Rs1,000 crore for 3G spectrum, then BSNL or MTNL would also have to pay the same amount for that particular circle, depending on their areas of service.


Mobile operators have already secured term loan facilities from banks and financial institutions for 3G funding. “However, in the short term, depending on the bid price, the winning operator may feel some pressure on its earnings,” said Ms Tripathi from Sharekhan.


Coming back to the action on the 11th day, two ‘Metro’ circles, Delhi and Mumbai, continue to receive the highest bids. While five bidders quoted a price of Rs850.42 crore for Delhi circle, the same for Mumbai was Rs752.38 crore. Tamil Nadu from ‘Circle A’ received the third-highest bid at Rs710.62 crore. All these circles have three slots each and a reserve bid price of Rs320 crore.

Two neighbouring circles, Maharashtra and Gujarat, received bids from five and two bidders, respectively, who quoted Rs696.96 crore and Rs589.16 crore for these circles. — Yogesh Sapkale

-- Sucheta Dalal