India Airwave Spectrum Auction Bids Reach $7 Billion

India got bids totaling 446.1 billion rupees ($7.12 billion) on the first day of a wireless spectrum auction yesterday, the third effort by the government to raise revenue from the sale of airwaves in the last 15 months.

Eight companies, including billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd., billionaire Sunil Mittal’s Bharti Airtel Ltd. (BHARTI) and Vodafone Group Plc (VOD), are competing for two bandwidth slots in 22 regional zones, according to a statement on the Press Information Bureau website.

The government’s two previous sales flopped because the floor price discouraged bidders. With the minimum being lowered this time, the competition will probably intensify as Bharti and Vodafone need to acquire 900 megahertz airwaves to continue services in India’s biggest mobile-phone regions where their licenses are set to expire later this year.

“These auctions are critical for the incumbents such as Bharti and Vodafone,” said Ankur Rudra, a Mumbai-based analyst with Ambit Capital Pvt. “Reliance Jio’s strategy remains a matter of speculation for now. We feel they are looking at making a calibrated entry rather than a big splash.”

Bharti Airtel rose 2.5 percent to 313.40 rupees as of 12:14 p.m. in Mumbai, while Reliance Communications Ltd. (RCOM) rose 2 percent to 123.45 rupees. Idea Cellular Ltd. (IDEA) rose 1 percent to 141.65 rupees. Vodafone dropped almost 2 percent to 222.10 pence in London yesterday.

India had 753 million active wireless subscribers as of November, the second biggest market after China, according to the Telecom Regulatory Authority of India. The South Asian nation is also the world’s fastest growing smartphone market, where data-enabled handsets are available for as little as 2,500 rupees, spurring carriers to raise broadband capacity. Bharti’s mobile data revenue more than doubled in the quarter ended December.

Deficit Target

The revenue from the auction will help India cut its budget deficit. Prime Minister Manmohan Singh aims to narrow the shortfall to 4.8 percent of gross domestic product and prevent a credit-rating downgrade to junk. The total value of spectrum for sale is at least about 490 billion rupees, according to the notice inviting applications.

The auction may fall short of the government’s target if incumbents, including Bharti and Vodafone and Idea Cellular Ltd., limit bids to license renewals, said Harit Shah, a Mumbai-based analyst with Nirmal Bang Equities Ltd.

In November 2012, India raised less than 25 percent of its target from an auction of airwaves that ended in two days. Demand was weak as the government had set a reserve price of almost nine times their original cost at a 2008 sale, the Cellular Operators Association of India said at the time.

Another auction in March attracted just one bidder, the Indian unit of Russia’s AFK Sistema.

Rule Change

Last year, India eased its mobile licensing rules to allow carriers to use any technology, including fourth-generation services, on any band. Billionaire Vladimir Evtushenkov’s Sistema was the first to get a 20-year license based on the new policy after it won 800 MHz airwaves.

India’s Supreme Court in 2012 canceled 122 licenses amid graft charges. The reserve price for the latest auction of airwaves has been cut by almost a third for 900 MHz spectrum in New Delhi, India’s largest mobile region.

The auction will probably continue till at least the end of this week, said Rajan Mathews, director general of the mobile phone operators’ group.

Participants in the auction have deposited cash that will be used as credit for the sale. The deposit paid by carriers such as Reliance Jio offer clues on the strategy they may adopt in bidding, Nitin Padmanabhan, an analyst at Espirito Santo Securities India Pvt., wrote in a note to clients yesterday.

“Deposits by 8 telcos participating in the auctions suggest to us that the top 2 players and Reliance Jio have kept all options open to be able to bid across circles,” he wrote. “An analysis of average total minutes per circle per MHz of spectrum suggests to us that telcos are starved for spectrum in 4 circles and we think bidding in these circles is likely to be aggressive.”

The four regions are Bihar, Maharashtra, Gujarat and Uttar Pradesh (East), he wrote.

To contact the reporters on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net; Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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