Do Indian Telcos Lose Their Appetite For 2G Spectrum: The Government Could Generate Just $1.71 Billion From The Auction

Must Read

On Wednesday, Norway-based telecommunication company–Telenor–emerged as the biggest bidder in India’s controversial mobile telecom 2G spectrum auctions. It’s pretty-known why the refresh 2G auction was conducted by Indian regulators. In February this year, honorable Supreme Court of India cancelled all 122 2G licenses due to irregularities in distribution of spectrum in 2008.

Telenor Invested INR 40.2 Billion In Auction

Telenor started its journey in India in conjunction with Unitech, a local company. The joint venture of both (Telenor and Unitech) was registered with name “Uninor”. However, the partnership came to an end this year, and now Telenor is working with Lakshdeep Investment & Finance—a personal financial investment by Sudhir Valia, a director of Sun Pharma.

Telenor’s fully-owned subsidiary—Telewings Communication—succeeded to hold spectrum in six zones including Andhra Pradesh, Bihar, UP East, UP West, Gujarat and Maharashtra. The telco owned the spectrum in six zones for INR 40.2bn, despite of this, it could not rescue Indian government to achieve the target. Indian government could generate just INR 94.1 billion(US$1.71 billion) from the refreshed 2G auction, less than a quarter of the INR 400 billion target.

Why Bidders Kept Themselves Away From The Auction ?

Interestingly, bidders kept themselves away from bidding for New Delhi and Mumbai due to high base price for spectrum. Initially, two bidders were opted for CDMA (code division multiple accessing), but later they escaped from the bidding. In other words, none of telcos bid for CDMA; The bidders went for the more popular GSM (Global System for Mobile Communications) spectrum.

However, Telenor was also one of the largest bidders in 2008 (won licenses in 21 areas), but this time, it preferred to exist from the mobile markets such as Mumbai, Kolkata and West Bengal. More importantly, just five bidders including Vodafone, Bharti Airtel, Videocon, Telenor and Idea Cellular participated in the refreshed 2G auction process.

Among the other four bidders, Idea Cellular paid INR 20 billion for 30 blocks, Videocon invested INR 21.3 billion on 22 blocks, Bharti Airtel paid INR 87 million on one block and Vodafone spent INR 12.95 billion for 23 blocks.

Anyway, Telenor has re-acquired spectrum in the six circles. Initially, the telco was expected to bid for nine zones, but later, it moved away from Mumbai zones due to high auction price. Telenor made distances from Kolkata and West Bengal zones because it has just 6 million subscriber base in these regions out of total 42 million customer base around the country.

Would Telenor Recover Its Investments Down The Road?

Telenor is quite aggressive this time and that’s why, it selected only those zones where it could continue its operations within the financial target what it has set itself. The company has already reassure its 34 million customers that it will seamlessly transfer its business assets from Uninor to Telewings.

This time, Telenor does not want to lose opportunities in smaller regions. The telco sees most of its traffic within states, so it does not need to have a Pan-India spectrum. That’s why it has focused on states, where it gets a quicker and impressive return on capital.  In the refreshed auction, it was noticed that investors’ appetite was quite low due to extreme high reserve prices.

Why Foreign Entrants Didn’t Participate In The Auction ?

Cancellation of all 122 2G licenses in February hurt India’s image as an investment prospective. Of course, telecom industry has been cornerstone for India’s success story over past few years, and this the main reason why several foreign companies invested billions in the Industry. Ironically, after the supreme court’s verdict, two companies—Emirates Telecommunication and Bahrain Telecommunication—have closed their operation  in the country. In addition to these, a Russia-based telecommunication–Sistema–had lost 21 licenses under the court order in February this year, and finally it decided not to participate in the auction of CDMA bandwidth.

Indiscriminately, the auction was very important for the government to keep their budget deficit within the target this fiscal year. The nature of the market has been changing since 2008, and it would be a big gaffe to extrapolate the market situation in forthcoming years.

Why Are Telcos Losing Their Appetite For 2G Spectrum?

According to a recent survey report, India holds seventh position in the world in terms of smartphone shipments with 2.9% market share. And by 2016, India will become the third largest market with 9.3% market share in terms of smartphone shipments. In other words, demand of 3G and 4G networks are expected to surge in coming years due to increasing number of smartphones in the market. However, average revenue per users (ARPU) from 2G services has been dismal for the operators since last couple of years due to intense competition in the market. Indeed, it will tough for investor to recover their investment on refreshed 2G spectrum auction.

In context of Telenor, it has targeted to states for its prevalence rather Pan-India spectrum. The telco has already made stronghold in number of states in partnership with Unitech. It has currently 34 million subscriber base (excluding Mumbai, Kolkata and West Bengal) and it could leverage over its existing subscriber base in order to achieve the target.

4 COMMENTS

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisement -

Latest News

Guide on How to Write a Winning Coursework for College?

The dream of all students is to be champions in every field of their life. College students want to...
- Advertisement -

In-Depth: Dprime

The Mad Rush: The Rising Wave of Smartwatches Among Indian Consumers

A few months ago, a 36-year-old named Adam Croft, residing in Flitwick, Bedfordshire, had a startling experience. One evening, he woke up feeling slightly...

PARTNER CONFERENCES

spot_img

More Articles Like This