New Delhi: Vodafone Group Plc and Bharti Airtel may have to pay the Indian government as much as $3 billion (Dh11 billion) each as 15 bidders vie for airwaves to offer faster data services in the world's second-largest wireless market.
India has begun auctioning 93 licences to provide high-speed data to mobile phones and computers that may raise an estimated Rs500 billion ($41 billion), helping reduce the nation's deficit. Bidders including Bharti, the nation's No 1 carrier, and the Indian unit of Newbury, England-based Vodafone, are competing for a chance to raise revenue in a market with call rates among the world's lowest.
"Prices are likely to surprise on the upside given the tremendous interest," said Shubham Majumder, regional head of telecommunications research at Macquarie Group in Mumbai. Bidding will be "fierce" for three available Broadband Wireless Access frequencies used to transmit data to computers, he said.
The broadband permits may raise $1 billion each, while the three nationwide third-generation licences may bring $2 billion apiece, Majumder said in an interview. An additional 87 local licences will also be sold simultaneously. The auction may raise Rs500 billion, Minister for Communications and Information Technology Andimuthu Raja said on Thursday in an interview broadcast by ET Now television channel.
Availability
"Bidding on BWA right now is a way for telecom companies to ensure spectrum availability for future growth, when 4G technology gets widely deployed," Majumder said, referring to the technology that may allow future handsets to pick up data transmitted in the BWA bandwidth. Qualcomm, the world's biggest maker of mobile-phone chips, is seeking a BWA licence to stimulate demand for its products, the company said March 30.
The auctions start with online bids for frequencies that may allow New Delhi-based Bharti and Vodafone Essar to offer 3G services for India's 545 million mobile subscribers. The sales may raise enough money to trim the nation's budget deficit by as much as half a percentage point, Nomura Holdings has said. Finance Minister Pranab Mukherjee earlier estimated the proceeds at Rs350 billion.
"India is underserved by data and we see an opportunity in that," Vodafone Essar Chief Executive Officer Marten Pieters said in an interview yesterday with Bloomberg-UTV channel, Bloomberg's local television partner.
Bidders including Reliance Communications and Idea Cellular declined to comment. The government prohibits participating companies from discussing their bids.
Mumbai-based Kotak Institutional Equities had initially predicted the government could net $11.4 billion from the auction, with each BWA slot fetching its reserve price of Rs17.5 billion, according to a March 15 report. After the bidders were disclosed by the Dep-artment of Telecommunications on March 19, Rohit Chordia, the Mumbai-based analyst who wrote Kotak's original report, said the broadband allocations could now go for as much as $1 billion each.
Call rates
"Our estimates were always made on the assumption of rationality from all the operators," said Chordia in an interview yesterday. "Now it seems our assumptions could have been on the conservative side."
Price competition that's pushed call rates down to among the cheapest in the world and aggressive advertising have kept India's voice market growing. About 19.9 million new mobile phone connections were added in January, a record, according to an estimate by Macquarie's Majumder. February saw 18.8 million new additions, according to government figures.
Since February, the number of bidders and a competitive auction designed by NM Rothschild and Sons and economists at London-based DotEcon, have prompted speculation that the auction proceeds will be more than initially expected, Majumder said.
Given that existing operators outnumber the slots available for all the service areas, "the likelihood of irrational bidding remains a key overhang," he said.
The sales will also stretch balance sheets at firms such as Reliance Communications and Bharti, said Majumder, who says the comp anies will assume debt of $3 billion each if they win licences in both the BWA and 3G auctions. Idea, a smaller rival, could spend as much as $1.5 billion to win its licence for 3G airwaves, Majumder wrote in an April 7 report.
The internet-based auction could take as long as two weeks, according to Dan Maldoom, an economist at DotEcon, the company which designed the auction for Rothschild.
The government will issue daily updates on the bidding, and all the data collected from bidders will be made public after the auction is over.
Online auction takes off smoothly
The 3G spectrum auction was off to a smooth start yesterday with top telecom operators, including Bharti, Vodafone, Reliance and Tatas, in the fray to acquire the radio waves that could fetch the government up to Rs500 billion (Dh29 billion).
When contacted, a senior Department of Telecom (DoT) official confirmed the smooth beginning of the auction across 22 circles simultaneously.
Asked whether the Indian government would fetch its target of Rs500 billion from the sale of spectrum, the official said it is difficult to guess any amount at this moment as it would depend on how aggressive the operators are in bidding.
