India –3G Auction Arrives Finally

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.

• Make Telecom Talk My Trusted Source
• 
• 

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.