3G auction signals some clear winners

NEW DELHI: Analysts welcomed the transparency with which India concluded the auction for third generation (3G) telecom airwaves, but their worries now have shifted to the cost of such services even as some bidders emerged clear winners.

"The numbers are so huge and unrealistic, one will expect a consolidation in the sector. After all, $3-4 billion for each player is not a small change," said Mahesh Uppal, director of telecom consulting firm Com First.

Agreed Sanjay Dutt of Quantum Securities, a leading brokerage and think think on the capital markets. In shakeouts like these, the hit is always taken by the dominant player, he said referring to Bharti.

"I see Reliance emerge as the real winner in this whole game. It has managed to acquire 80 percent of the top circles for what-something like Rs.8,500 crore! It can now easily acquire access to the remaining circles," Dutt told IANS.

He went on to add that the fact that Reliance was a player on both the GSM and CDMA markets - two main technologies for mobile telecom services in India - would also go a long way in deriving the best out of its available infrastructure.

The auction of airwaves for third generation (3G) telecom services to private players concluded Wednesday, accruing a commitment of Rs.67,718.95 crore ($15 billion) to the Indian government.

Among the players that won the maximum circles, Reliance has the spectrum for 13 circles, including Delhi, Mumbai, Kolkata and Punjab, and will have to shell out Rs.8,585.04 crore ($1.91 billion).

Bharti, on the other hand, which also has 13 circles, such as Delhi, Mumbai, Andhra Pradesh and Karnataka will have to pay Rs.12,295.46 crore ($2.73 billion).

Aircel, the third player to grab 13 circles, has focused largely on south India and will have to pay Rs.6,499.46 crore ($1.44 billion).

The high bid price has added another dimension to the issue - over its impact on the pricing of 3G services that will facilitate faster connectivity and new applications such as Internet TV, video-on-demand, audio-video calls and high-speed data exchange.

"It's not that these costs are not going to be recovered at all," Uppal told IANS. "Just because you bought spectrum at a high cost, does not mean you will price 3G services out of reach of most consumers. Market forces will drive pricing," he said.

"The numbers are mind boggling and it is going to be a big challenge for telecom operators to leverage high costs and still be able to offer services at low costs," said CyberMedia group's chief editor Prasanto K. Roy.

"Companies will use part of this spectrum for voice services, but it will also help in the spread of data services throughout the country."

Yet, stock markets may not be expected to look at the telecom sector with much favour, said Jagannadham Thunuguntla, the equity head for brokerage firm SMC Capitals.

Telecom stocks have not been a choice of investment for the past year or so because of the reduced margins and its fallout on profitability of these companies, said Thunuguntla.

"3G will act as a trigger for consolidation in the sector. But in the meanwhile, investors are not going to be kind to telecom stocks as the price paid for spectrum has been way above expectations."

Quantum's Dutt had a similar view point. He said the telecom watchdog has also made strong recommendations to enable consolidation. "When that happens, there will be a clear advantages for some players like Reliance - dominant players will have to pay a price."