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Bharti, Vodafone Stay Away From Metros as Airwave Sale Kicks Off

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Nov. 12 (Bloomberg) -- Bharti Airtel Ltd., Vodafone Group Plc and three other bidders at an Indian airwave auction avoided nationwide licenses and two of the biggest cities, raising concern the government may fall short of a targeted $7.3 billion in revenue from the sale.

Operators bid 92 billion rupees ($1.7 billion) on smaller zones and stayed away from New Delhi and Mumbai, Department of Telecommunications Secretary R. Chandrashekhar told reporters in the nation’s capital at the end of the first day. The two cities account for about 78 percent of the funds Finance Minister Palaniappan Chidambaram is counting on to help narrow the budget deficit to 5.3 percent of gross domestic product by March 31 amid threats of a credit downgrade to junk by Standard & Poor’s and Fitch Ratings.

The government’s game plan of pricing the airwaves almost nine times their original cost at a 2008 sale may have backfired amid waning demand from weary carriers saddled with a combined debt of more than $23 billion, said New Delhi-based Rajan Mathews, director general of industry group Cellular Operators Association of India. Chidambaram may raise not more than 130 billion rupees when the auction ends, he said, an amount that is only 33 percent of the goal.

“The government-created artificial scarcity and inflated prices were completely unwarranted,” Mathews said in a telephone interview. “The best case scenario now is that the government learns from its mistake and re-evaluates its pricing for future auctions.”

‘Money Power’

The auction will resume on Nov. 14 after tomorrow’s holiday for the Hindu festival of Diwali, Chandrashekhar said. The 1800 megahertz band was made available after the Supreme Court earlier this year said spectrum must be auctioned rather than sold and canceled 122 licenses, saying their original allocation had been corrupted by “money power’’ and some buyers’ “ability to manipulate the system.’’

Chidambaram is seeking to curb the budget deficit to an almost decade low of 3 percent of GDP in five years as S&P and Fitch reduced the outlook on India’s credit rating to negative from stable earlier in 2012, bringing the nation a step closer to non-investment grade.

“We have high expectations for aggressive bidding to bring as much as possible to the kitty,” Kapil Sibal, India’s minister for telecommunications told reporters in New Delhi on Nov. 8.

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net

To contact the editor responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net

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