SingTel – BT

Bharti’s pan-India 3G plan foiled by hot bids

Group paying 123 billion rupees for permits in 13 of the 22 regions

Bharti Airtel Ltd, India’s largest carrier and a unit of Singapore Telecommunications Ltd, scrapped plans to offer nationwide high-speed mobile phone services after bidding in a government auction drove prices ‘beyond reasonable levels.’

India’s 34-day auction of third-generation licences for airwaves in its 22 telecommunications zones ended on Wednesday with none of the nine approved bidders buying all the permits for national coverage. The auction raised 677.2 billion rupees (S$20.4 billion) for the government.

‘I am sure every pan-Indian operator would love to get their hands on pan-Indian spectrum, but the price needs to be right,’ Theo Maas, who owns Bharti shareholder Singapore Telecommunications Ltd as part of the US$4.5 billion in assets he oversees at Arnhem Investment Management in Sydney, said.

As bids surged beyond initial expectations, there was a ‘trade-off that every operator would make,’ he said.

The licence prices stoked concern that carriers won’t be able to recoup their investment from a market where calls cost a penny a minute, the cheapest in the world.

France Telecom SA and Deutsche Telekom AG posted record losses after European phone companies paid more than US$100 billion to buy 3G licences a decade ago.

‘The auction format and severe spectrum shortage along with ensuing policy uncertainty drove the prices beyond reasonable levels,’ Bharti, which is paying 123 billion rupees for permits in 13 of the 22 regions, said in a statement on Wednesday.

‘As a result, we could not achieve our objective of pan-India 3G footprint.’

In some areas of the country, building new base stations and towers might have been a cheaper alternative to buying new spectrum, according to Arnhem’s Mr Maas.

Bharti rose one per cent to 262.4 rupees at 11.33 am in Mumbai trading yesterday, while Reliance Communications added 1.7 per cent to 139 rupees, and Idea Cellular Ltd climbed 4.3 per cent.

Bharti has fallen 16 per cent since the auction began on April 9, while Reliance dropped 24 per cent, and Idea Cellular Ltd slumped 22 per cent.

That compares with an 8.5 per cent decline for the benchmark Sensex index in the same period.

Morgan Stanley raised its investment rating for India’s telecommunications companies yesterday to ‘in-line’ from ‘cautious,’ citing the removal of uncertainty over the pricing of third-generation spectrum with the conclusion of the auction, as well as stability in the region’s tariff wars.

The proceeds from the auction exceed the 350 billion rupees Finance Minister Pranab Mukherjee projected in his budget, and may help the government meet a target of shrinking the budget deficit by more than one percentage point of gross domestic product, the sharpest cut in 19 years.

On May 11, India’s telecommunications regulator said prices for 3G spectrum established through the auction should be used as a base to charge for second-generation airwaves.

The recommendation threatens to raise costs for mobile-phone companies.

The lack of clarity on regulations ‘gets worse by the day,’ Mark James, an analyst with Liberum Capital Ltd, said from London before the auction ended. — Bloomberg


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