Sector Watch: Telecom

Sector Watch: Telecom

The department of telecommunications (DoT) has released information memorandum providing information and guidelines on the auction of third generation (3G) mobile services and broadband wireless access (BWA) in India.

The auction will be held for 3G spectrum in the 2.1 GHz band and for BWA in the 2.3 GHz and 2.5 GHz bands. However, there is no clarity on 3G auction of CDMA.

The reserve price of 3G on a pan-India basis would amount to Rs2,020 crore while that for BWA would be Rs1,010 crore.

For 3G spectrum, the reserve price for Delhi, Mumbai and A circles is Rs160 crore; that for Kolkata and B circles is Rs80 crore and for C circles is Rs30 crore. The reserve price for BWA spectrum is 50% of that for 3G spectrum.

In the 3G and BWA auctions, each bidder will be allowed to bid for only one block per circle. The right to use the 3G spectrum would be valid for 20 years while the right to use the BWA spectrum would be valid for 15 years.

Bharti is relatively better placed than its competitors due to its strong balance sheet and cash and investments of Rs5,000 crore.

Reliance Communication (R Comm) has yet to achieve national roll out of its GSM services, whereas there is no clarity on the auction of 3G CDMA, where R Comm is the market leader.

Bharti’s existing 2G towers will lower the cost of 3G roll outs. Further, Bharti’s subscriber base should help in meeting the roll out obligations much earlier than its competitors.

The company can participate in the bid along with a foreign bidder. It will have to comply with the conditions to get the UAS license and if successful in the bidding process should obtain government approvals.

However, the foreign bidder’s stake must stay within the 74% foreign direct investment limit.

The company derives 10% of its revenues from value-added services. Moving these customers to 3G spectrum should help it arrest the decline in its future ARPU.