By R. Jai Krishna
NEW DELHI--India on Wednesday began an auction of frequencies to
cellular operators as it seeks to raise 800 billion rupees ($12.92
billion) through nontax means to improve the country's weak
financial position.
The auctions began this morning, two company executives, who are
bidding for the frequencies, told The Wall Street Journal on
condition of anonymity.
Six telecommunication companies are vying to secure bandwidth,
including India's top-four cellular firms: Bharti Airtel Ltd.
(532454.BY), the local unit of Vodafone Group PLC (VOD.LN), Idea
Cellular Ltd. (532822.BY) and Reliance Communications Ltd.
(532712.BY).
"There is lot at stake," one of the executives said.
The auction, which was delayed from February 25, is important
for telecom firms, some of which have expiring regional operating
permits. Failure to secure the 20-year extensions could mean they
have to shut down operations in some areas. Meanwhile, carriers
also want more bandwidth to expand their service offerings as
demand for mobile data and high-speed internet jumps.
The auctions are also crucial for the government to boost
revenue and keep the country's fiscal deficit within the targeted
4.1% of gross domestic product in the year ending March. Analysts
said that while a highly competitive bidding process means the
government could hit its fundraising target, companies may end up
taking on too much debt, boosting debt-to-equity ratios and
bringing about earnings volatility.
New Delhi is auctioning bandwidth for global system for mobile
communications, or GSM, technology; code division multiple access,
or CDMA, technology; as well as frequencies for third-generation or
3G mobile technology used in high-speed internet services.
Starting bid prices range between 21.91 billion rupees and 37.05
billion rupees ($355 million-$599 million).
Bidding is set to be intense as supply is limited and cellular
operators try to retain existing spectrum and acquire new
bandwidth, Fitch Ratings said. It expects cellular operators to
spend at least $13 billion in the auctions, with more than 75% of
that coming from the top-four telecom firms.
The sole foreign participant, Norway's Telenor ASA, hopes to
secure new frequencies to expand its operations in India.
Reliance Jio Infocomm Ltd., the yet-to-be-launched
telecommunications venture of Reliance Industries Ltd., is also in
the race for bandwidth as it plans to offer telephone-to-television
services on smartphones and tablets.
Russia's Sistema JSFC has stayed away from the auctions citing
high prices.
A day ahead of the auctions on Tuesday, UBS said it believes
that the market is "overly pessimistic" on the outcome of the
frequency sale. "We choose to take a contrarian view and feel the
outcome of spectrum auctions could be a strong re-rating event
given the uncertainty surrounding spectrum renewals is likely to
dissipate post auctions," UBS analyst Suresh A. Mahadevan said.
"Also, we do not believe RJio has the ability to disrupt the mobile
market given the company lacks a mass market offering."
UBS has a Buy rating on Bharti and Idea Cellular.
Write to R. Jai Krishna at krishna.jai@wsj.com
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