In 2000, British Telecom and Vodafone were the darlings of stock markets in the UK. But share prices and revenues took a knock after the telecom majors won 3G spectrum through a high-priced bidding.
The UK government expected to raise around £3 billion from auction of five 3G licences, but it ended with £23 billion. Many analysts had termed it the ‘winner’s curse’.
Nine years later, the winner’s curse could be heading for India, say analysts. The government has fixed a base price of Rs 3,500 crore for 3G spectrum auction, around 75 per cent higher than the earlier bid price of Rs 2,020 crore. The auction prices are expected to be pushed much higher by companies trying to outbid one another.
The Cellular Operators’ Association of India (COAI), the GSM operator’s body, expects 3G spectrum bids to begin at Rs 5,000 crore. Crisil Research factors in a bid value of Rs 8,500-9,000 crore in the “event of an aggressive bidding scenario”.
“As it is, the base price for the 3G spectrum auction is high. Irresponsible bidding for 3G may make it difficult for the winners to provide services at competitive tariffs,” COAI Director General T V Ramachandran told Business Standard.
“Yes, this would result in a definite case of ‘winner’s curse’,” he added. COAI is the association of the GSM operators in the country.
The Rs 3,500-crore base price, according to COAI, will result in companies looking at a bid price of around Rs 5,000-7,000 crore. Industry sources said all leading 2G operators were gearing up to place bids for 3G spectrum. Service providers like Bharti Airtel, Reliance Communications (RCom), Vodafone-Essar, Tata Teleservices Ltd and Idea Cellular have begun fund raising exercises for a 3G foray. New licensees, including Datacom Solutions, Etisalat DB Telecom and Unitech Wireless, are unlikely to stay away.
Others agree with Ramachandran’s views. A Mumbai-based analyst said, “A major issue would be the spectrum-starved companies using 3G spectrum for 2G operations, a move that would impact the quality of 3G services in the country. This would result in 3G services failing to gain traction, at least for the first two years after auction.”
“The winners would take around six months to commence operations, while the allocation of spectrum would also take another two to three months from the date of auction,” he added.
Frost & Sullivan Deputy Director (ICT Practice-South Asia & Middle East) Girish Trivedi said, “It won’t be a cakewalk for any of the telecom companies that are bidding for 3G spectrum. The success of 3G operations would depend on each company’s business model, and the success or failure has to be measured on a case to case basis.”
According to Crisil Research, 3G operators would have an internal rate of return (IRR) of 15 per cent over a 10-year period for a player with a 12-15 per cent 2G and 3G combined market share. With 3G penetration initially expected to be low, returns from investments made in 3G networks will take some time, it added.
Prem Kumar, CEO of Meridian Telecom (makers of ‘Fly’ brand handsets), said, “As long as 3G services are not prohibitively expensive, consumers are expected to buy the services as awareness builds up. Building awareness would take some time, and operators bidding for 3G know that this is a long game.”
Details like slots and procedures on 3G allocation are not clear. The industry is awaiting clarity on the issue, which the government will address at the 3G spectrum pre-bid conference, slated to take place in October.
