Vodafone, Airtel win costly 3G spectrum

NEW DELHI, INDIA: Vodafone and Bharti paid a combined $5.1 billion for 3G mobile licences in the country, ending an epic auction that yields a bonanza for a deficit-strapped government but puts winners under pressure.

Reliance Communications also won the right to provide third-generation services in an auction that lasted 34 days and will generate $14.6 billion for the government, authorities said on Wednesday, nearly twice what it had expected.

"It's good news for the government, no doubt," said Arun Kejriwal, strategist at Kris Research in Mumbai.

"For the operators it's a large sum of money that has to be paid out. We have to see how these services are priced and received by the subscribers and how it will impact their profitability," he said.

India is the world's fastest growing mobile phone market with some 500 million subscribers. India's three biggest carriers -- Vodafone, Bharti Airtel and Reliance Communications -- each won key licences to offer 3G services in Delhi and Mumbai.

Nine private operators participated in the auction for three sets of licences, which ended with no single carrier winning high-speed 3G spectrum in all 22 circles up for bidding.

Seven different carriers, including Idea Cellular and unlisted Tata Teleservices, ended up winning spectrum. Japan's NTT DoCoMo owns 26 percent of Tata Teleservices.

A fourth licence will be sold separately and has been reserved for state operators.

India is a late adapter of 3G and is the biggest economy not to offer such premium services on a wide scale, although the state-run telecoms firms have 3G services in some zones.

Vodafone Essar, the UK giant's India unit, will pay about $2.5 billion for its India 3G mobile spectrum, according to government data, and said it planned to launch a service by year-end.

Bharti, one-third owned by SingTel, is paying about $2.6 billion but India's top carrier said it fell short of its objective of securing a pan-India footprint due to high prices.

"We would like to point out that the auction format and severe spectrum shortage along with ensuing policy uncertainty, drove the prices beyond reasonable levels," the company said in a statement.

The auction will help the government plug a fiscal deficit that last year reached a 16-year high, and may enable it to cut back on borrowing, bringing relief to satiated bond investors.

"The 3G auction results demonstrate that the government borrowing will sail through smoothly," said Paresh Nayar, head of foreign exchange and money markets at First Rand Bank in Mumbai.

Finance Minister Pranab Mukherjee said the auction proceeds will give "elbow room" to the government.

CONSOLIDATION SPUR

The spirited bidding has been a drag on the share price of operators competing in a market saturated with 15 operators.

Vodafone Group Plc signalled increasing frustration with its key India unit on Tuesday, taking a charge of 2.3 billion pounds ($3.28 billion) due to fierce competition and rapidly escalating spectrum costs.

On top of the auction, the telecoms regulator has called for mobile operators to pay a one-time fee for 2G radio spectrum with high bandwidth, which they won several years ago, a move that has drawn fierce criticism from all involved.

Rollout of 3G is expected to exacerbate the gap between the haves and the have-nots in India's crowded mobile market and eventually trigger a wave of consolidation.

It also puts pressure on the winners, who must justify their licence outlays and may find themselves constrained from making further investment. They will need to spend billions of dollars more on 3G network equipment.

India is adding roughly 16 million new users a month, and heavy bidding was driven in part by the need to secure additional capacity to provide basic voice service.

"Obviously, the spectrum pricing looks very high, but if you look at 500 million subscribers, that 3G has the potential as it can be used for both voice and data, the spectrum price may be viable," said Naresh Singh, an analyst at Gartner in Mumbai.

The 3G auction will be followed in two days by an auction for wireless broadband spectrum, for which 11 firms are vying for two national licences for private operators, with one slot reserved for state telecoms firms.