India kicks off $1.8 billion spectrum auction

James Crabtree

India's struggling telecoms industry is today due to kick off its latest round of spectrum auctions, after the nation's Supreme Court on Sunday rejected a last-minute petition from Vodafone and Bharti Airtel to delay the contest.

The court's decision is a blow to India's two largest telecoms operators by sales, both of whom had filed petitions to stop the $1.8 billion re-auctioning of valuable spectrum they own in major cities, including Mumbai and New Delhi.

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Bharti and Vodafone will now have to re-bid for licenses in these cities that begin to expire later this year, in spite of claims from both groups that their contracts ought to allow them to reacquire the spectrum without competitive bidding.

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Monday's spectrum auction is the third attempt by India's government in the past year and a half to auction second generation spectrum, which underpins basic voice and data services, in a contest that organizers hope will raise as much as Rs113 billion ($1.8 billion).

The auctions follow two failed attempts that foundered when Indian regulators set the prices too high to attract sufficient major bidders.

Monday's bidding process, which is likely to take more than a week to complete, is also part of efforts to repair the damage done to India's ailing telecoms sector by a 2012 Supreme Court ruling that cancelled more than 100 mobile licences, on grounds of improper allocation and suspected corruption.

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That led a number of foreign players to exit India's highly competitive telecoms market, and saw major disruption to the businesses of others, including Telenor of Norway and Sistema of Russia.

Eight companies have signed up to bid in this week's auctions, including Vodafone and Bharti, alongside billionaire Mukesh Ambani's Reliance Industries, which is planning to launch a super-fast "4G" telecoms data business this year.

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The likelihood that Reliance, India's largest industrial business, will now also use the auctions to enter the market for more basic voice telecoms has raised concerns about new period of competition in the sector.

India's telecoms industry has only recently begun to recover from a period off intense price wars and erratic government regulation. That dented the promise of the world's second largest telecoms market by subscribers and left many operators saddled with significant debts.

But analysts said that the auction process was unlikely to lead to the kind of bidding war that led operators in India and other major telecoms markets to invest billions in third generation spectrum, again leaving them struggling with excessive debt levels.

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"This isn't the first auction we've had, in fact it is really round three, so I think mostly people will be sensible, even though Reliance is something of a wild card," said Suresh Mahadevan, head telecoms analyst in Asia for UBS.

"The most intense bidding is likely to come from Bharti and Vodafone for the spectrum in cities such as Delhi and Mumbai, where this really is do or die and I'd expect them to bid strongly, but more generally I don't expect people to go crazy."