3G: High competition may push up bid prices

NEW DELHI, INDIA: India kicked off an eagerly awaited multi-billion dollar spectrum auction on Friday that would help telecom firms in the world's fastest-growing wireless market offer premium third-generation (3G) services.

Strong competition among bidders, which include Bharti Airtel, Reliance Communications and the Indian unit of Vodafone, should push up winning bids to as much as thrice the base price.

A spokesman for India's Department of Telecommunications told Reuters the 3G auction had begun as per schedule. Officials have said it would take at least a week or possibly more for the auctions to be completed.

The country's top mobile operators - most of them backed by international phone firms - are vying for a total 71 3G slots on offer in India's 22 telecoms zones in the auction, which is to be followed by a separate auction of broadband spectrum and would be one of the world's biggest such auctions in recent years.

The Indian government has pencilled in revenues of nearly $8 billion from the auctions, but analysts expect the auctions to fetch more than the government's target, helping it plug its fiscal deficit, which was at a 16-year high last year.

Bharti, India's biggest mobile operator, and rivals Reliance Communications, Vodafone Essar and Tata Teleservices are seen winning the most number of slots in the 3G auction, for which the base price has been set at 35 billion rupees ($790 million) for a national cover.

But limited number of slots - three each in 17 of the 22 zones and four in the remainder - and deep-pocketed firms in the fray could see winning bids for national cover go above $1 billion or even touch $2 billion, analysts say.

Stretching finances?

Winning 3G spectrum will boost the valuations of companies as they get to offer premium services such as high-speed Internet and video calling on mobile phones. But aggressive bidding could stretch the finances of companies and weigh on their earnings.

CRISIL, a unit of rating agency Standard & Poor's, said on Friday large debt funding for the 3G spectrum may put pressure on the financial risk profiles of telecoms firms over the near to medium term, but was unlikely to impact their credit profiles.

"Still companies should pay less than what others had to pay in auctions abroad," said Ambareesh Baliga, a vice president at local brokerage Karvy Stock Broking, who sees the auctions as positive for telecoms firms.

In 2000, the UK raised more than $35 billion from a spectrum auction, while Germany collected about $67 billion from its UMTS licence auctions. In 2008, the United States raised $18 billion from spectrum auction.

Germany's latest mobile phone spectrum auction starts Monday, which analysts expect to raise from 3 billion to 7 billion euros. ($7 billion-$9 billion). Vodafone is also one of the bidders in the German auction.

Baliga said he expected Bharti, which controls more than 22 percent of the Indian cellphone market with 125 million mobile users, to win maximum number of slots in the 3G auction.