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Business News/ Market / Mark-to-market/  Telecom investors await auction fine print
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Telecom investors await auction fine print

The government appears to be taking on board a number of recommendations made by Trai on spectrum auctions

Investors will watch the results of the auction closely to determine if return ratios will get impacted because of another bout of unreasonable capital outlay on spectrum purchases.Premium
Investors will watch the results of the auction closely to determine if return ratios will get impacted because of another bout of unreasonable capital outlay on spectrum purchases.

The government appears to be taking on board a number of recommendations made by the Telecom Regulatory Authority of India (Trai) on spectrum auctions. Reports suggest that it is now planning to auction 3G spectrum (in the 2,100 MHz band) as well, against the earlier plan of auctioning spectrum only in the 900 MHz and 1,800 MHz bands. A report in The Financial Express added that the defence ministry has agreed to swap 15 MHz of spectrum in the 2,100 MHz band.

All of this should help in keeping a check on bids during the auction. The fear earlier was that limited availability of spectrum would result in irrational bids, ultimately resulting in underinvestment in other capital expenditure; leading to poor network quality.

Rahul Khullar, chairman, Trai, had said that if the auction were conducted according to the government’s original plan, it would set the industry back by three to four years. One of the regulator’s recommendations was for the government to auction spectrum across different frequencies. Another was vacation of spectrum by the defence.

Interestingly, however, shares of Bharti Airtel Ltd and Idea Cellular Ltd fell by 2% and 2.6%, respectively on Thursday, despite reports of a softening in the government’s stand.

According to an analyst with a domestic institutional brokerage, investors are likely to wait for the fine print before jumping to any conclusions. To be sure, there isn’t any concrete information yet about the base price for the 3G spectrum or any other details, for that matter. In any case, past experience shows that spectrum auctions can throw up surprising results; and it’s difficult to predict how telecom companies will end up bidding.

Meanwhile, incumbents such as Bharti Airtel and Idea Cellular are in a sweet spot, with tariffs having risen high enough in the past 18 months to levels where they can earn a decent profit, but still low-enough from the perspective of competitors, who are still running large losses.

Consequently, earnings are growing at a decent pace of over 20% year-on-year. Needless to say, investors will watch the results of the auction closely to determine if return ratios will get impacted because of another bout of unreasonable capital outlay on spectrum purchases.

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Published: 04 Dec 2014, 09:58 PM IST
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