After being postponed several times in the last two years, the long-awaited 3G & Broadband Wireless Access (BWA) spectrum auction is finally happening today. While commercial usage is only permitted from September 2010 onwards, a successful auction should lay the groundwork for faster internet connectivity and data transfer on mobile phones, boosting usage of data services in the cellular market.
While the purpose of the auction was to facilitate the further development of the telecom sector, it has captured market attention more for its probable impact on India’s fiscal health and its exchange rate.
With nine bidders competing for three to four spectrum slots in 22 zones across the country, the finance ministry expects to raise around INR 360bn, as mentioned in the FY11 Union Budget. With fixed base prices (the government’s minimum acceptable price) of INR 35bn, a company will receive pan-India 3G coverage.
The government should be able to raise a minimum of around INR 140bn if auctions for all the spectrum slots clear at the base price. However, it is highly likely that the auctions will be extremely competitive, and the proceeds will significantly exceed the minimum base price and be closer to the Ministry of Finance’s (MoF’s) estimate of INR 360bn.
In this context, intense competition among telecom players to garner market size in one of the fastest-growing cellular markets is an obvious factor. In fact, international interest in India’s telecom sector is evident, given that most of the bidders include an element of foreign participation (ranging from 26-70%). In addition, despite the long delay, the level of current investor interest in the auction speaks volumes about the market’s potential.
Although a high proportion of the bidding is likely to be funded by investors’ own internal resources, or foreign direct investment which has already happened, the debt route is also expected to feature. In fact, well thought-out government measures to increase bidders’ funding options have provided a boost. Here, the announcement by the MoF in early 2010 to ease overseas borrowing rules is important. The MoF has allowed prospective bidders to raise rupee funds from domestic markets which can be refinanced via overseas borrowing in the next 12 months, subject to certain conditions.
Given that the government has budgeted to receive INR 360bn (equivalent to 0.7% of GDP) in its balance sheet for FY11 (which began in April) from the sale of 3G spectrum, a successful auction would be an important step in achieving the revenue receipts target of 18% y/y, and thus a fiscal deficit target of 5.5% of GDP. The rating agencies are closely monitoring the government’s efforts towards delivering on its fiscal consolidation promise, and therefore a successful execution of the 3G auction would bode well for the Indian rupee (INR) over the medium term.
We expect this should lead to increased investor optimism about India’s sovereign outlook and give a fillip to portfolio inflows. The market also expects a pick-up in debt inflows, following the Reserve Bank of India’s decision in late 2009 to allow companies to raise external commercial borrowings (ECB) in order to bid for spectrum allocation. In fact, with the date of the auction nearing,the FX market has reportedly begun to position itself for a pick-up in ECB inflows. However, in our view, the impact on ECBs is not as certain, as the possibility remains that eligible bidders will choose to utilise their existing funding rather than borrow afresh.
Disappointment on this front may stall INR gains temporarily. That said, we view this as a near-term risk and expect broad INR appreciation to be sustained as the market refocuses on India’s positive fundamentals and balanced policy outlook.
-A Research Report By Anubhuti Sahay, Economist , Standard Chartered Bank
vaibbhav April 12, 2010 at 12:46 am
japan is planning to launch 4G . india is still doing auction for 3G. what a govt????????????
Max April 11, 2010 at 9:08 pm
@chughgopal
3G auctions will be held for 3-5weeks so the winner will be declared only after 3-5weeks
chughgopal April 11, 2010 at 8:43 pm
who won????
Ajinkya April 11, 2010 at 10:13 am
If we really want to use 3G bandwidth in india it should be provided by government/mobile companies at cheap rate. we should use it for schools,e learning in our rural schools,IT companies should provide facility for their employees to work from anywhere in india with 3G mobile bandwidth. This will save lot of fuel (IT company employees not using their cars,bikes. roads will be less crowded) and overcrowding of cities ( employees can work from their town ,village remotely) of course my statements sounds like a dream we all and goverment can make it reality. Let’s hope for the best.
rajiev April 10, 2010 at 12:41 am
that’s why we don;t need to makes hopes.
Prasath J April 10, 2010 at 12:23 am
With lack of competition in 3G, I am not excited about 3G… Yes, may be BSNL 3G tariff is good… But when Airtel comes and increases the 3G tariff, BSNL will also follow, just like what it has done with per second plans… (First BSNL charging 1p/sec for onnet and offnet & later on seeing Airtel’s 1.2p/sec offnet tariff, BSNL also followed…
I don’t have high hopes for 3G services in India, unless minimum 6 to 8 service providers are allowed to provide 3G in each circle…
vinay April 10, 2010 at 12:11 am
y only 3-4 operators to b allowed. all operators, when given unified licence, shud b allowed to use 3g. y customers shud suffer for buying sim card of small operators?
Max April 9, 2010 at 10:29 pm
@zareef
In karnataka Airtel,vodafone,reliance or tata may get 3G spectrum cos here other operators r not strong enough to invest huge amount on 3G. idea karnataka has 25lak subscribers whic is not true cos when docomo launched its service idea lost 2lak customers within 2 months( tis was told by my friend who works in idea cellular), Aircel is adding customers in 1000s,whic ll not even think of launching in such a circle wher its ARPU is below 55-60rs. so there will be competation between these 4 only
zareef April 9, 2010 at 8:26 pm
in karnataka dot alloted only 3 spectrum for operator…. it should be increase
zareef April 9, 2010 at 8:25 pm
Airtel crying
& got pan india 3g spectrum seems they forcefully applying for 3G spectrum …
Leader April 9, 2010 at 6:36 pm
@Avi H
Strongly agreeing.
Aaditya April 9, 2010 at 6:35 pm
There can only be 3 3G service providers in most of the important money minting circles like Mumbai & Delhi so dere wil b a realy tough fight between all the company’s I think Vodafone Airtel & Tata wil take d cake bt I also tink that Etisalat or Idea can spring up a surprise in sum circles….
Idrees April 9, 2010 at 6:24 pm
don’t underestimate birla group…
Avi H April 9, 2010 at 6:04 pm
Agreed,….
Max April 9, 2010 at 6:03 pm
@prem
@zeeshan
Airtel, vodafone reliance & tata r equally strong financially so u cant judge who is going to get pan india licence
zeeshan April 9, 2010 at 5:35 pm
I think vodafone, Relaince and Tata will get maximum slots.@prem
prem April 9, 2010 at 4:31 pm
But openion is that Airtel will get pan india licences.
rajiev April 9, 2010 at 4:16 pm
the winner is airtel and vodafone for maximum number of circle
Max April 9, 2010 at 3:20 pm
Hmmmm lets wait & watch wat ll happen. but according to my openion every operator should get 3G spectrum in the circles wher they r market leaders.. bigges like Airtel,vodafone, reliance & TATA have enough money to get pan india spectrum & they r ready to pay very very huge amount also, but small players cant afford tat much money.. hope everybody gets a chance to provide 3G services
123 April 9, 2010 at 1:39 pm
Chalo der aaye durust aaye