India to Raise $9.8 Billion From Phone Spectrum Auction

India raised almost $10 billion from an auction of wireless spectrum that saw billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. emerge as a potential competitor to Vodafone Group Plc and Bharti Airtel Ltd.

The government got 375.7 billion rupees ($6 billion) of bids for the 1,800 megahertz band in 22 regional zones and 235.9 billion rupees for 900 MHz in Mumbai, New Delhi and Kolkata, Suraj Radhakrishnan, vice president at auction facilitator e-Procurement Technologies Ltd., said yesterday. The government valued the spectrum on sale at a minimum of 490 billion rupees.

Reliance Jio joins Vodafone, the biggest spender in the auction, and billionaire Sunil Mittal’s Bharti in seeking to tap the world’s biggest wireless market by users after China as mobile-data usage surges. Part of the proceeds are due upfront, boosting Prime Minister Manmohan Singh’s push to pare the fiscal deficit ahead of the budget next week.

“This was an expensive auction which is going to take its toll on balance sheets of the companies that are already deep in debt, like Bharti,” said Harit Shah, a Mumbai-based analyst with Nirmal Bang Equities Ltd. Reliance Jio, the newest entrant, bought airwaves in all of India’s key regions and may push Bharti for market share, Shah said.

Vodafone said it spent 196 billion rupees in the auction, including for key airwaves in Mumbai, New Delhi and Kolkata, with about 56 billion rupees payable this fiscal year. Some of the spectrum acquired in the 1,800 MHz band will be used for a fourth-generation mobile service, the company said.

Bharti, Reliance Jio

Bharti’s expenditure was 185.3 billion rupees, with 54.3 billion rupees due upfront, the company said in a statement. The balance is to be paid in 10 annual installments, starting after two years, it said. The company’s total debt was 733.1 billion rupees in the three months through December, up from 101.9 billion rupees in 2010.

Reliance Jio bid about 111 billion rupees, based on calculations by Bloomberg News using provisional auction data released by the Indian government. The company bought 1,800 MHz spectrum in 14 telecom regions. Idea Cellular Ltd. bid about 104 billion rupees. Both chose the installment payment plan.

“This is a great result for Vodafone,” said Nirmal Bang’s Shah. “They’ve just become a monster in India and still have a pile of cash at their disposal after the Verizon deal.”

Shares Climb

India, the world’s fastest growing smartphone market, has become a primary destination for Vodafone’s 7 billion-pound ($11.5 billion) “Project Spring” campaign, a network upgrade funded by the company’s $130 billion sale of its stake in Verizon Wireless in the U.S.

Bharti Airtel’s shares gained 0.8 percent at the close in Mumbai. Idea Cellular increased 0.7 percent, while the benchmark S&P BSE Sensex index rose 0.9 percent. Vodafone fell 1.1 percent to 218.95 pence as of 12:02 p.m. in London trading.

The auction has ended uncertainty over renewals of airwaves at Bharti Airtel, CLSA Asia-Pacific Markets said in a note. Bharti and Vodafone had spectrum expiring in key cities in November.

About 82 percent of the spectrum on offer was sold, Telecommunications Secretary M.F. Farooqui said yesterday. Expectations of rising mobile-data use fueled demand, he said.

India had 753 million active wireless subscribers as of November, according to the Telecom Regulatory Authority of India. More people are using smartphones, spurring data demand.

Broadband Demand

Vodafone has said data use in India more than doubled in the three months ended Dec. 31. Bharti’s mobile data revenue also more than doubled in that period.

Proceeds from the auction will help India trim its budget deficit. The government seeks to narrow the shortfall to 4.8 percent of gross domestic product in the year ending March 31, which would be a six-year low.

The government will receive at least 183 billion rupees from the spectrum sale within 10 days, Farooqui said. Companies have the option of paying a third of the 1,800 MHz fee upfront and the rest by 2026. For 900 MHz, they can pay a quarter of the fee upfront and the remainder by the same date.

“This will see a smile on the face” of Finance Minister Palaniappan Chidambaram, Telecommunications Minister Kapil Sibal said yesterday, referring to the funds raised.

Aircel Ltd., Tata Teleservices Ltd., Telenor ASA’s Telewings Communications Services Pvt., and billionaire Anil Ambani’s Reliance Communications Ltd. also participated.

Possible Consolidation?

Tata and Loop Mobile India Ltd., which offer services in and around the state of Maharashtra, could be the first targets in a flurry of consolidation this year, said Rajan Mathews, director general of the Cellular Operators Association of India. Videocon Industries Ltd.’s wireless business, Norway’s Telenor ASA and Russia’s Sistema JSFC could also engage in merger talks with larger carriers, he said.

“Bharti is the new player in Maharashtra, so they would be a natural fit for Loop,” he said in a phone interview from New Delhi. “Reliance and Vodafone also have pretty deep pockets and could look to expand this year.”

Reliance Industries operates the world’s largest refining complex. The group started moving back into telecommunications in 2010 when it agreed to pay 48 billion rupees for control of Infotel Broadband Services Ltd. Reliance Jio is aiming to make a foray into the country’s mobile-voice and data market.

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