Indian telecoms: the saga rolls on - Financial Times (blog)

Another auction, another disappointment for India's Department of Telecommunications. A second round of 2G auctions was scheduled for March 11 but when the "List of Applicants" was published this week, it didn't actually qualify as a list. Only one possible bidder signed up. The upcoming auction was supposed to cover 1800 MHz, 900 MHz and 800 MHz spectrum but only Sistema Shyam TeleServices Limited, a subsidiary of Russia's Sistema, signed up to purchase licences in the 800 MHz band. The government is refarming spectrum after India's supreme court cancelled more than 100 2G licences last year in the aftermath of a high-profile corruption trial in New Delhi. The long and contentious process has been damaging for India's telecoms operators, already struggling with unpredictable regulation, strong competition and rising levels of debt. The low take-up for next month's auction is particularly embarrassing given that the minimum prices were reduced by 30 per cent, after the previous auction in November raised less than a quarter of its $7.4bn target with operators seeing the pricing as excessive. Several incumbent operators are trying to negotiate renewal of their licences and waiting for a decision from the High Court before bidding for new ones. "The whole situation is a bit ridiculous", said Akhil Dattani, an analyst at JP Morgan. "Historically, there have been a lot of scandals about underspend – the government giving away spectrum. Now, they want everything to look robust and they're pricing high. Also, at the moment governments the world over are in need of money, so why not push hard at these auctions?" In terms of what happens now, Jaideep Ghosh, a partner at KPMG in India, told beyondbrics: "We've seen in the recent past that whenever there is no bid for spectrum the prices have been lowered significantly. So one may expect some of that." The news is particularly badly timed for the Indian government, coming just ahead of Thursday's long-awaited budget announcement. The hope was that earnings from 2G spectrum auctions would help tackle an unsustainable budget deficit, estimated at 5.9 per cent of GDP. Some were surprised by Sistema Shyam's decision to participate. At the last round in November, it had said it would not bid. The group said it had "consistently maintained that it has been unfairly penalised… and considering the level of recommended spectrum prices which makes the business case unviable, SSTL [Sistema] had no choice other than not to take part." Analysts were expecting an M&A deal to keep the company in the Indian market but none materialised, and the High Court recently decided not to renew its existing licences. Sistema then issued a statement last week saying it planned to close its service in ten areas and participate in the upcoming auction. Dattani explains Sistema's decision to bid in the current round: "They were playing hardball. As they are a decent sized player you would expect them to do something like Telenor and scale back operations rather than sacrificing their whole business." But there will surely be more twists in this story. Shares in India's major operators rallied on Tuesday on hopes that the government would be forced to slash prices in future auctions at which operators will have to renew their licences. Bharti Airtel gained 1.6 per cent on Tuesday to Rs311.80; Idea Cellular was up 4.1 per cent to Rs118.35. Related reading: Muted response to India's mobile auction, FT India's telecoms sector faces uncertainty, FT Indian telecom: light at tunnel's end? beyondbrics via Technology - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHDSjhlM2Ckw5FFtSqZGgHoRwi8Vg&url=http://blogs.ft.com/beyond-brics/2013/02/26/indian-telecoms-the-saga-rolls-on/

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