The finance ministry’s proposal to set the reserve price for pan-India third-generation or 3G spectrum at Rs4,040 crore has irked the Cellular Operators Association of India.
According to CNBC-TV18, the association has said that the pricing is not favourable and will impact the rollout of wireless broadband services.
Nareshchandra Singh, principal research analyst at Gartner Inc., says that the said base price isn’t high for a large market such as India. Singh says 3G shouldn’t be viewed only as a new service, but as a platform that will optimize even the voice capacity of telecom companies by three-four times, apart from enhancing capabilities with data services.
The stockmarkets, too, seemed to brush off concerns that the reserve price has been set high. All major listed wireless companies gained on Friday, with Reliance Communications Ltd and Idea Cellular Ltd gaining by 2-3%, beating the 1.5% rise in the Nifty. One of the views on the street is that even if the reserve price were set at Rs2,020 crore, as proposed by the telecom ministry, the bids would be well over Rs4,000 crore. In fact, reports that the government may increase the number of operator slots and allow an additional slot is a positive, as this will reduce competition during bidding.
According to the earlier proposal, 3G spectrum would be available for roughly four firms in each circle, including state-owned Bharat Sanchar Nigam Ltd. If the number of slots are increased, telecom operators needn’t worry as about losing out and hence the bids will be more rational.
One of the views on the street is that even if the reserve price were set at Rs2,020 crore, as proposed by the telecom ministry, the bids would be well over Rs4,000 crore
Gartner’s Singh adds that he doesn’t see Indian operators going overboard in the bidding process since they are aware of the global experience with 3G and also because availability of capital is still an issue.
Bharti Airtel Ltd, VodafoneEssar Ltd and Idea Cellular are well capitalized and would have no financial constraints with regard to bidding for 3G licences.
But as far as Reliance Communications goes, the company is already saddled with high levels of debt (it hasn’t yet published its balance sheet for the year ended March) and a pan-India bid for 3G will worsen its gearing and profitability. Needless to say, this is already factored in its share price.
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