Tough times lie ahead telcos post 3G auction
The recently concluded 3G auctions is set to fetch the Indian government around $15 billion in revenues, nearly double the goal set for both 3G and BWA auctions combined. Though no single telco won a pan-India license, Bharti and Vodafone with total bids of $2.7 billion and $2.6 billion for 13 and 9 circles respectively also won the most lucrative circles of Delhi and Mumbai. With this win both operators have protected their premium subscriber base and heavy legacy investments. The other Metro winner Reliance has ensured that they now have the ability to target premium, high value subscribers. Beyond these Metros, the picture is a mixed bag with circles dispersed among all the winning bidders. The biggest surprise of the auction was the strong show put forth by Idea and Aircel.
"The auction rules allowed bidders to pursue zonal as opposed to pan-India strategies but more significantly, as the intense bidding pushed prices steadily higher, most operators were forced to abandon pan-India dreams and make hard choices. India will now have six significant 3G players with fragmented coverage maps in addition to the state-owned BSNL/MTNL combine," said Shiv Putcha, principal analyst with Ovum’s Emerging Markets practice.
However the real task for the successful 3G bidders begins now, as individual telcos will feel varying degrees of financial pressure as they work hard to realign their balance sheets to cope with rising debt levels resulting from the raising of capital required for 3G network deployments and other prospective costs like increased license fee burdens. Operators like Bharti, Vodafone and MTNL have strong cash reserves and are well placed to absorb rising debt to equity ratios. Reliance, Idea, and Aircel will be more dependent on external borrowings to finance their respective deployments and keep momentum.
"The key is to quickly drive revenue growth from 3G services. 3G will provide operators with an opportunity to break out of the vicious circle of price competition with differentiated, data-centric services. The lower cost of providing voice will also help margins and provide capacity relief. Moreover, time to market for 3G services will be shorter than the global norm since networks are mostly 3G ready and devices have already been pre-seeded in key circles," concludes Shiv Putcha.
Also read: Impact of 3G auction on MTNL and BSNL
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