Telecom stocks rally after 3G auction

Telecom stocks rally after 3G auction

Mumbai: Shares in India’s leading telecom firms rallied on Thursday morning after the government wrapped up its auction of third-generation (3G) bandwidth for mobile telephone services.

Leading mobile phone firm Bharti Airtel rose 1.64% to Rs263.8, while rival Reliance Communications was up 3.1% at Rs141.1.

The two companies each won bids for spectrum licences in 13 service areas across India. The government had offered a total of 71 licences across 22 regions.

The auction wrapped up on Wednesday after 34 days of frenetic bidding.

Both firms had seen their share price fall between 15 and 18% in the past month, as the bidding process drove spectrum prices way above their original estimates.

Bharti and Reliance will paying Rs12,300 crore ($2.6 billion) and Rs8,590 crore respectively for their licences.

Analysts have warned that telecom firms could take a hit on their balance sheets due to the huge outlay, with medium-term profitability a big concern.

Thursday’s rally was seen as a response to the fact that speculation over the final bidding prices was now over.

“Buying has emerged in telecom stocks as there is clarity on the issue ... investors know how much companies are paying," said Gaurang Shah, vice-president of Geojit BNP Paribas Financial Services.

Idea Cellular, which won 3G permits in 11 service areas, saw its share price rise 3.51% to Rs54.6.

The final bids for the superfast 3G services earned the government nearly $15 billion -- double its own estimate.

None of the bidding firms won 3G mobile spectrum in all 22 service areas up for grabs but Bharti, Reliance and Vodafone Essar all won spectrum in the key -- and most expensive -- Delhi and Mumbai areas.

The fear is that telecom firms may not be able to recover their investments in a market where call tariffs are the lowest in the world, at one cent a minute, due to intense competition.