3G bids: irrational or mature?
01-05-2010
With spectrum supply such a huge block to expansion, 3G winners could gain in the longer run despite the cost
Bid values for a pan-India licence for 3G services hit Rs.95.21 billion ($2.15 billion) on Friday, with completion of 104 rounds of bidding in the auction, a telecommunications ministry statement said. Nine cellular firms, including market leaders Bharti Airtel and Reliance Communications, are competing for 3G slots
Telecom Minister A. Raja said earlier in the week that government was likely to earn Rs.50000-55000 crores ($11.23-12.35 billion) from the 3G spectrum auction and auction of broadband wireless access (BWA) spectrum after that. Raja said revenues from 3G alone may exceed Rs.40000 crores ($9 billion).
He said the 3G auction should finish early next week, but analysts forecast it could last longer based on the ongoing level of bidding interest.
The bidders are battling for slots in 22 telecom zones across the country with three India-wide allocations available.
Proceeds from the auction, which began on April 9, will be an important source of revenue for the government as it seeks to plug a yawning budget deficit.
Analysts say the cost of 3G could strain the balance sheets of India's telecom companies that are already under pressure from a savage price war.
Bids are surpassing 'rational levels', Citigroup analysts said in a report written when the cost of a pan-India 3G licence crossed $1.3 billion. The report adds that frenzied bidding in big circles may rule out the chances of smaller players bagging 3G airwaves in these regions.
But is the bidding irrational? It is widely beleived that the expensive 3G airwaves, once allotted, will be deployed for running voice-based mobile communications which is expected to generate 90% of operator revenues for a considerable period, post-allotment of 3G spectrum.
The high bids in the top circles may be the best indicator of the acute spectrum crunch faced by large telcos. The allocations of 2G spectrum, the airwaves on which all mobile services are currently offered, have been on hold for over a year. Large operators therefore need 3G airwaves to relieve their congested networks
"Anywhere between 60-80% of all telcos' total revenues come from the metros of Delhi and Mumbai and the 'A' circles of Maharashtra, Gujarat, Tamil Nadu, Karnataka and Andhra Pradesh. The strong bids prove the current crunch for airwaves in these states" said BK Syngal, senior principal at DuaConsulting and former VSNL chairman.
Another factor is the indication that the telecom regulator may rule that mobile phone companies are entitled to have up to 8 MHz of 2G wireless spectrum without any additional payment. With the telcos sensing that that they will have to pay no additional cost for up to 8 MHz of 2G airwaves in every circle, they could be more aggressive in their 3G bids. "If the 8 MHz buzz is true, then the current status of 3G bidding is not irrational" says Syngal. An operator who has 8 MHz of 2G spectrum and is also successful in the ongoing 3G auctions, will have a total of 13 MHz or units of airwaves across the country, and would not require additional airwaves in the future.
"Once an operator has 13 MHz, the telco is immune to policy changes and can no longer be held hostage by changes in regulations or by the government. Therefore, there is nothing wrong in bidding judiciously and securing one's future. As much as the 3G bidding may be irrational, it can also be considered mature" he adds.
Inputs from Economic Times
Bid values for a pan-India licence for 3G services hit Rs.95.21 billion ($2.15 billion) on Friday, with completion of 104 rounds of bidding in the auction, a telecommunications ministry statement said. Nine cellular firms, including market leaders Bharti Airtel and Reliance Communications, are competing for 3G slots
Telecom Minister A. Raja said earlier in the week that government was likely to earn Rs.50000-55000 crores ($11.23-12.35 billion) from the 3G spectrum auction and auction of broadband wireless access (BWA) spectrum after that. Raja said revenues from 3G alone may exceed Rs.40000 crores ($9 billion).
He said the 3G auction should finish early next week, but analysts forecast it could last longer based on the ongoing level of bidding interest.
The bidders are battling for slots in 22 telecom zones across the country with three India-wide allocations available.
Proceeds from the auction, which began on April 9, will be an important source of revenue for the government as it seeks to plug a yawning budget deficit.
Analysts say the cost of 3G could strain the balance sheets of India's telecom companies that are already under pressure from a savage price war.
Bids are surpassing 'rational levels', Citigroup analysts said in a report written when the cost of a pan-India 3G licence crossed $1.3 billion. The report adds that frenzied bidding in big circles may rule out the chances of smaller players bagging 3G airwaves in these regions.
But is the bidding irrational? It is widely beleived that the expensive 3G airwaves, once allotted, will be deployed for running voice-based mobile communications which is expected to generate 90% of operator revenues for a considerable period, post-allotment of 3G spectrum.
The high bids in the top circles may be the best indicator of the acute spectrum crunch faced by large telcos. The allocations of 2G spectrum, the airwaves on which all mobile services are currently offered, have been on hold for over a year. Large operators therefore need 3G airwaves to relieve their congested networks
"Anywhere between 60-80% of all telcos' total revenues come from the metros of Delhi and Mumbai and the 'A' circles of Maharashtra, Gujarat, Tamil Nadu, Karnataka and Andhra Pradesh. The strong bids prove the current crunch for airwaves in these states" said BK Syngal, senior principal at DuaConsulting and former VSNL chairman.
Another factor is the indication that the telecom regulator may rule that mobile phone companies are entitled to have up to 8 MHz of 2G wireless spectrum without any additional payment. With the telcos sensing that that they will have to pay no additional cost for up to 8 MHz of 2G airwaves in every circle, they could be more aggressive in their 3G bids. "If the 8 MHz buzz is true, then the current status of 3G bidding is not irrational" says Syngal. An operator who has 8 MHz of 2G spectrum and is also successful in the ongoing 3G auctions, will have a total of 13 MHz or units of airwaves across the country, and would not require additional airwaves in the future.
"Once an operator has 13 MHz, the telco is immune to policy changes and can no longer be held hostage by changes in regulations or by the government. Therefore, there is nothing wrong in bidding judiciously and securing one's future. As much as the 3G bidding may be irrational, it can also be considered mature" he adds.
Inputs from Economic Times
