×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Bidders likely to lap up 3G, thanks to spectrum

Bidders likely to lap up 3G, thanks to spectrum
Comment E-mail Print Share
First Published: Sun, Dec 06 2009. 11 53 AM IST

Updated: Sun, Dec 06 2009. 11 53 AM IST
New Delhi: An apparent lack of interest in the auction for high-speed third-generation (3G) and broadband wireless access (BWA) spectrum won’t stop the government from getting bidders to cough up the cash that it needs to control a burgeoning deficit.
That’s because many potential bidders running 2G services, already scrambling for scarce spectrum to carry mobile phone calls, desperately want the additional frequencies that will come with a 3G licence.
Mint reported on Tuesday that the pre-bid meet recently hosted by the department of telecommunications (DoT) to answer queries and resolve doubts showed that interest in the auction may have waned since 23 December, when the last such meeting was held.
Listen to a podcast on why 3G has taken so long to come to India
DoT, in its information memorandum, has said that the auction will be held starting on 14 January and that the government expects to raise a total of Rs35,000 crore from the sale. The government has set the reserve price for a nationwide 3G licence at Rs3,500 crore, while that for BWA spectrum is half that.
Also See What’s on Offer (Graphics)
“All the circles will go for much more than the reserve price. With more than 12 players in a market, spectrum is a very limited resource. The four-five major incumbent operators cannot afford to ignore 3G spectrum to assure growth. Listed firms that lose the auction will see a significant fall in their share prices as their future growth is dependent on spectrum,” said Mahesh Uppal, director with regulatory adviser ComFirst (India) Pvt. Ltd. “Auctioning of only four slots in a market where there are more than 12 domestic operators and maybe some foreign operators who may participate in the auction would mean that from the government’s point of view, there is nothing to worry about.”
The government has kept its revenue expectations from the auction to a minimum.
“They have added up the reserve price for all the circles from the BWA and 3G auctions and then added a minimum premium, which will be made from just the metros” of New Delhi, Mumbai, Kolkata and Chennai, said a telecom consultant with one of the foreign phone companies on condition of anonymity as he is not authorized to speak to the media.
The scarcity of spectrum for telecom operators has been further worsened by DoT’s decision to freeze all additional allocation of frequencies.
In an operating area such as Delhi, which is one of the most saturated telecom circles, only two 3G slots will be allocated.
“Delhi alone could easily go for double or triple the reserve price,” said Kunal Bajaj, managing director with strategy analysis firm BDA Connect Pvt. Ltd. “The cost of losing spectrum is too high as the top 9% of subscribers contribute 25% of revenue.”
With the advent of mobile number portability (MNP), losing in the auction could mean having to sacrifice users who yield higher average revenue as they could migrate to companies that are offering 3G, Bajaj said.
“Around 25 million 3G handsets are already installed in the country,” he said, all of whom are readymade potential customers.
Incumbents will try their best to get 3G spectrum to ensure that valuations aren’t eroded.
“A national player would need to bid across the country, while a new operator may only bid for their favourite circles,” Uppal said. “Even if they don’t want to start 3G services, they might try and get the spectrum in order to increase the value of their firm for when they sell out.”
In the pre-bid conference on Monday, DoT officials had said that one of the objectives of the auction was to alleviate the congestion of airwaves that is leading to poor quality of mobile services in India.
Earlier this year, DoT had frozen the allocation of additional 2G spectrum, at the request of the finance ministry, until the recommendations of the committee on the subject were decided upon.
The panel, headed by additional secretary (telecom) Subodh Kumar, recommended to the telecom commission in May that all spectrum be auctioned as opposed to the present system of allocation based on the number of users (subscriber-linked criteria) a phone company was able to acquire.
The committee also recommended the easing of merger and acquisition rules in the telecom sector as well as spectrum trading and sharing. The report has been submitted by DoT to the Telecom Regulatory Authority of India, which will make its recommendations based on a consultation process that will include all stakeholders.
The consequence of this freeze in spectrum allocation is that most of the incumbent telecom operators who have been adding subscribers by the millions will soon run out of airwaves to accommodate new users.
“The artificial scarcity of spectrum in the metros would force incumbent operators like Bharti Airtel Ltd, Reliance Communications Ltd and Vodafone Essar to go after whatever spectrum there is available in the cities. They need the spectrum for their existing voice services,” a Mumbai-based analyst with an international brokerage firm said on condition of anonymity as he is not authorized to speak to the media.
Analysts agree that the first thing spectrum winners, currently running 2G services, will do is improve existing networks that are highly congested. They may decide to add newer 3G data services only after this is complete.
The high demand for spectrum in the metros and what are referred to as A circles won’t mean that the lower revenue generating B and C circles will get less attention.
“In the rural markets, the reserve price is low (Rs30 crore for 3G), but spectrum is spectrum, which might cost higher later. The telcos will pick it up,” said Bajaj of BDA Connect. “Rural markets make twice the revenue contribution of VAS (value-added services) as compared to urban markets.”
In rural markets, the revenue contribution from VAS of 18-20% is more than double that of the average revenue contribution of around 9%. “This is because rural areas have lower avenues of entertainment,” Bajaj said.
“The operators don’t know when the next auction will take place and how much the spectrum will cost” when that happens, he added.
Executives from Bharti Airtel, Reliance Communications and Vodafone declined to comment for this story.
Graphics by Ahmed Raza Khan / Mint
Comment E-mail Print Share
First Published: Sun, Dec 06 2009. 11 53 AM IST
More Topics: Bidders | 3G spectrum | DoT | 3G licence | Kunal Bajaj |