Telecom – 3G Policy

Eventually the government, after much delays and controversies, has managed to announce the schedule for 3G/BWA spectrum auction. According to the notice inviting bids from telcos, 3G auction would start on April 9, 2010 while BWA auction would follow 2 days after close of 3G auction. For 3G, a minimum of 3 slots of 2x5MHz each in the 2.1GHz band would be offered at a pan-India reserve price of ~Rs34bn. This figure is above the average of the respective asking prices of DoT and the finance ministry.

Two slots of 20MHz each in the 2.3GHz band for BWA shall be sold at half the base price set for 3G. Based on 1.5x (3G) and 1.3x (BWA) bids above reserve price, we project total auction revenues of ~US$4.2bn, much lower than that budgeted by the government. Given the pricing war and prospects of weak earnings over next few quarters, companies may tone down aggressive bidding at the auctions. Expect pan-India incumbents like Bharti, Vodafone and Rcom to be key beneficiaries while others like Aircel may prefer to bid aggressively only in their pockets of dominance. Retain Bharti as the top pick in the sector.