March 11 (Bloomberg) -- India completed an auction for wireless airwaves today at which there was only one bidder, the Indian unit of Russia’s AFK Sistema.
The remaining 12 carriers in the world’s second-largest mobile-phone market including billionaire Sunil Mittal’s Bharti Airtel Ltd. and Anil Ambani’s Reliance Communications Ltd. skipped the sale as they face off in a “battle of chicken” with the government over the spectrum’s floor price, according to Harit Shah at Nirmal Bang Institutional Equities.
Finance Minister Palaniappan Chidambaram, who last month cut his goal of raising 400 billion rupees ($7.3 billion) from spectrum and license sales in the year ending March to 194 billion rupees, faces a shortfall as he battles to narrow a budget deficit. While Sistema bid 36.4 billion rupees today to recover airwaves lost when the nation’s top court last year scrapped 122 wireless permits amid graft charges, others including Vodafone Group Plc will see some licenses come up for renewal in 2014.
“They’re all lying in a bed of uncertainty which isn’t getting any clearer,” said Shah, a Mumbai-based analyst with Nirmal Bang. “Since the Supreme Court’s order, it seems like every move by the government has helped kill India’s golden goose then knocked over its eggs.”
India’s last sale of airwaves in November drew just five bidders, including none for the 800 MHz spectrum that Sistema bid for today, and fetched the government 94.1 billion rupees. Demand for the airwaves waned after the government set a reserve price of almost nine times their original cost at a 2008 sale, Rajan Mathews, director general of industry group Cellular Operators Association of India, said at the time.
With Sistema’s bid, India is set to raise about 130 billion rupees from the sale of spectrum in the year ending March 31. That will probably be short of the government’s target as no more auctions are scheduled for this month.
“We can show everyone the glass: is it half-full or half-empty?,” said R. Chandrashekhar, secretary of the Department of Telecommunications. “That you have to decide.”
Today’s sale contrasts with the $19.5 billion that 11 companies bid in 2010 for airwaves to offer high-speed third-generation mobile-phone services and wireless Internet connectivity.
“The Supreme Court’s cancellations were the beginning of the end,” Mathews said. “Since then, we’ve spent more time in court than in managing our operations, resulting in a complete tailspin for the industry.”
The number of mobile-phone subscribers in India fell to 865 million at the end of December, from 934 million in June, according to data from the Telecom Regulatory Authority of India. Emirates Telecommunications Corp. and Bahrain Telecommunications Co. left India soon after licenses were canceled in February last year by the Supreme Court which found that permits given in 2008 had been corrupted by “money power” and some buyers’ “ability to manipulate the system.”
Sistema, which has written off $700 million of its $3.2 billion investment in India since 2008, has said it will stay in India as part of Sistema Shyam TeleServices Ltd. and is trying to salvage a part of the network it built before the court ruling. The unit of Russia’s biggest phone company won spectrum in eight regions including the capital New Delhi and Kolkata. It shut down operations in some of its service areas, leaving it with 12.1 million users in the remaining regions.
Sistema was allowed by India to set off 16.3 billion rupees paid for the previously canceled licenses toward the cost of the new spectrum, the company said in an e-mailed statement. The carrier can pay 75 percent of the bid amount in 10 annual installments after March 2016, it said.
The government in January reduced the opening price for the 800 MHz spectrum by half to lure bids. The reserve price for a pan-India license was set at 75.6 billion rupees, down from 151.1 billion rupees in November.
Still, the cut fell short of operators’ expectations of a 75 percent reduction, Ashok Sud, secretary general of the Association of Unified Telecom Service Providers of India, said at the time.
“The reserve prices which have been offered are not economical, it’s just too expensive,” said Mohammad Chowdhury, leader of telecommunications practice at PricewaterhouseCoopers in Mumbai. “If companies are forced to pay government prices, they won’t be able to raise call rates without taking a hit in minutes of usage.”
The New Delhi High Court and India’s Supreme Court have combined to hear more than a dozen cases from operators and the Department of Telecommunications, including cases filed by Sistema, Norway’s ASA Telenor, Tata Teleservices Maharashtra Ltd. and Idea Cellular Ltd. who all claim their licenses were wrongfully terminated.
Bharti and Vodafone have also sought to legally stay the government’s plan to sell spectrum in the 900 MHz band, which is presently owned by operators whose licenses will start to expire in 2014.
“This action to arbitrarily withdraw the 900 MHz spectrum is not only against provisions of policy and license but also disruptive and against public interest,” Vodafone said in an e-mailed statement last month.
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