Mint, New Delhi Mobis Philipose column
Dec 10, 2012 (Mint - McClatchy-Tribune Information Services via COMTEX) --
The subdued response to the spectrum auction has forced the government to lower its fund-raising target. The so-called empowered group of ministers has decided to recommend a 30% cut in the reserve price of spectrum in four circles that had attracted no bids. This includes the Delhi and Mumbai circles, which earlier accounted for as much as 39% of the total expected sales value for pan-India spectrum.
After the 30% cut, the reserve price for the two metro circles accounts for a little over 32% of the reserve price for pan-India spectrum. Analysts at BofA Merrill Lynch Research said in a recent report this is still steep, considering that the two circles contribute only around 15% to industry revenue. The analysts added that spectrum in Karnataka may find takers post the 30% reserve price cut but Rajasthan may remain unsold as spectrum availability rather than price is a likely deterrent there.
The auction in end-October demonstrated that telecom companies have become much more disciplined, especially compared with the generous bids made during the 3G auction. If the trend continues, the government may well have to lower its targets again. The ministerial panel has also decided not to lower the pricing of spectrum in the 900MHz band, and has maintained its reserve price at two times the price set for the 1800MHz band.
On the other hand, if the government manages to get bids at the revised price points, the outgo for telecom companies will end up being higher than what analysts had expected. BofA-ML analysts, for instance, had expected a 50% cut in reserve price and lowering the pricing of 900MHz spectrum to 1.3 times the price set for the 1800MHz. Unsurprisingly, telecom stocks fell by 1-1.5% on Monday. Shares of both Bharti Airtel Ltd and Idea Cellular Ltd had outperformed by a huge margin since end-October as the subdued response to the auction meant that the outgo on regulatory fees will be lower than anticipated. Besides, it also indicated a reduction in competitive intensity.
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