3G auction ends: Who's the real winner?

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3G auction ends: Who's the real winner?

Telecom majors Vodafone and Bharti coughed up combined USD 5.1 billion for 3G mobile licences, ending an epic auction that yields a bonanza for a deficit-strapped government but puts winners under pressure.

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Excerpts from What's Hot on CNBC-TV18 Watch the full show » RELATED NEWS 3G auction ends: Bharti cries foul 3G aution is sensible bidding: Trai 3G auction ends: Who gets what? 3G auctions end, Govt to get around Rs 70,000 cr ALSO READ See latest News about Bharti Airtel See previous management interviews See what other Experts & Brokerages are saying about Bharti Airtel

Telecom majors Vodafone and Bharti combined have coughed up USD 5.1 billion for 3G mobile licences, ending an epic auction that yields a bonanza for a deficit-strapped government but puts winners under pressure.

Reliance Communications also won the right to provide third-generation services in an auction that lasted 34 days and will generate USD 14.6 billion for the government, nearly twice what it had expected.

In an interview with CNBC-TV18, Vinod Nair, Managing Partner (India) at Diamond Mgmt & Tech Consultants; Kunal Bajaj, Director of Analysys Mason and Prashant Singhal, Telecom Analyst at E&Y, discussed the outcomes of the 3G auction and who were the real winners in the end.

Below is a verbatim transcript of the interview. Also watch the video.

Q: No pan-India operator emerging-Reliance Communication getting 13, Bharti getting 13, Idea getting 11, Vodafone 9 and of course Tata 7-strategically, who would you think has emerged the strongest at the end of this auction?

Kunal Bajaj: Everyone has emerged stronger than they would have been had one single player tried to win the pan-India license in whole. So it's a little bit of a comfort to the industry that no single player is out there trying to play the entire Rs 16,500 crores and that every one is basically tempered the amount of money that they have to raise internally to stay in the range of about USD 2 billion to USD 2.5 billion maximum.

If we look at the way the bidding is being spread out, obviously, Airtel and Reliance have the most circles. But the way they have ended up spreading out their bidding-ends up being very heavy on the category C circles along with Delhi and Mumbai in a sprinkler of other circles in between.

In terms of a smart spending, Idea and Aircel have definitely emerged as some of the smartest spenders in terms of getting a wide distribution of category A, B and C circles and yet limiting their spent to half or less than half of what Airtel and the top players have had to bid.  

Q: Let me put that same question to you in terms of smart spending, would you echo what Kunal has said and also in terms of breakeven period now that there is clarity on how much who is shelling out-what are you exactly looking at in terms of returns of investment and breakeven period?

Vinod Nair: This is an interesting option. I would say that the jury is probably sit out in terms of what was a smart strategy. But clearly there were 2 or 3 different strategies at play. There are clearly some operators who thought it was critical to go for the big metros. It was probably linked to the business cases they had. It was probably linked to the nature of their current business-whether they are incumbents in those circles or they have large corporate customers in Delhi and Mumbai.

But to some extent, yes there are some other operators who have chosen either a geographic footprint-I think you can see some clear patterns about the South, for instance, you can see patterns in the East. When you have Andhra Pradesh, Karnataka and Tamil Nadu as circles like Kerala included within that or you play Bihar, West Bengal, Orissa, Uttar Pradesh-there are some patterns clearly emerging but these are different stories and these are largely based on the business cases that they have. I would say that the jury probably still out on what is a smart strategy. It is only time that will actually tell.

In terms of breakeven periods, the auction has been very expensive. It's taken most people by surprise. It's gone beyond what most people have initially expected. Not surprisingly, whatever breakeven period was factored in initially this is probably going to make that a bit longer.