CAPITAL VIEW
Fighting over 'imaginary' plots of land
AS we move into the business end of the long awaited 3G and BWA(broadband wireless access) auction this week, logic says that oncethe sale of the air waves is completed, as a consequence thelaunch of high speed third generation mobile services will follow.What does the culimnation of the 3G auction mean for the Government ofIndia? The asset sale means that India can bridge its widely debatedfiscal deficit to the tune of at least Rs 36,000 crore. More thanthat, it means that large Indian telecoms are paying through theirnose to capture plots of land which will be made available sometime inthe future. Spectrum is a precious and scarce national resource whichis in extreme short supply. Analogously speaking, the bidders arecoughing up big bucks to book these precious plots of landprospectively. From the list of bidders, it is clear that no newforeign telco has evinced interest despite India being one of the mostlucrative telecoms market in the world. The only new foreign player isEtisalat which in any case has taken equity in one of the playersawarded a 2G licence when it was dubiously given out a couple of yearsago on a first come first served basis. Lack of clarity over theprocess and most importantly the timing of the physical award of theprecious spectrum remains a conundrum and an impediment in the path offoreign biggies like AT & T, Verizon, Sprint et al.
The 2G controversy refuses to die down with CBI, ED and Income Taxsleuths probing the extent of a multi million dollar scam even as Iwrite this. That is the strangest bit about Indian telecom - agangbuster success story - but one mired in controversy and litigationfrom day one. And yet an unprecedented success. Telecom promoters inIndia have made money hand over fist, some by exiting at the top ofthe valuation game, others having created wealth for themselves andshareholders by building robust businesses. Analjit Singh, WarburgPincus, Rajan Nanda, Rajeev Chandrasekhar, Rajeev Mehrotra are some ofthe names who have made truckloads of cash, while Sunil Mittal hasshown that he is the true blue poster child of the reforms age. Thatleaves the Ruia brothers who have done exceedingly well by dabbling inIndian telecom at the right time.
Mark two dates in your calendar - April 9 and April 12 will see the 3Gand BWA auction sweepstakes roll out. It is abundantly clear thatIndia's top six telcos will bid aggressively for 3G spectrum acrossall 22 circles, while three others including Etisalat's Indiantelecoms venture will bid in select zones. The six heavyweights -Airtel, Reliance Communications, Vodafone Essar, Idea Cellular, TataDocomo and Aircel have bid for pan Indian footprints, but the realityof only 3 slots being available in the majority of India's 22 circlesand four in fewer circles should see cash being poured into thegovernment's coffers. While Airtel is now exporting its factoryminutes or low tariffs model to Africa, the advent of NTT Docomo andother players like Russia's Sistema (MTS) have resulted in a gravitydefying price war in India leading to profitability strains and topline stagnation. These price warriors have wreaked havoc on balancesheets of existing players who were enjoying high profitability andalmost unidirectional growth.
At the kernel of the battle are the 3 slots available in the morefertile circles and this where the bids will top a billion dollars andanalysts aver even closer to $1.5 billion. Similarly, broadbandwireless should see large cheques being cut since only two slots areavailable in 22 circles. It is incumbent on large Indian operators tograb this prospective resource as India's air waves are congested.Ergo, expect the amounts to be substantive. For a long time, itappeared that the government didn't have the appetite to go ahead withthis process, for pressure groups wary of locking up capitalexpenditure were stalling the auction. The constant change of goalposts didn't help India's image as a reformer with foreign investorseither.
High end services are an anathema in a low price, volume driven Indianmarket where voice remains king. Foreign telcos did not take kindly tothe fact that spectrum may be awarded only in September. The longstanding dispute between the ministry of defence and the department oftelecom over the release of these air waves remains the single biggestdeterrent in this great game, going forward.
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