India’s Telecom Market is a unique market in a lot of ways.The differences are<\/p>\n
The severe competition in the Indian market makes surviving and making profits a tough task for almost all the companies except for a few.Bharti due to its first mover advantage is India’s largest telecom company with a relatively better balance sheet than other companies.The other big players are state owned BSNL,Vodafone,Reliance,Idea and Tata-DoCoMo. There are also a number of smaller regional players and national wannabees.With even 2G spectrum scarce , voice quality is poor and leads to frequent dropped calls.Before the 3G spectrum auction was started , a cutthroat price war was unleashed by new entrants like DoCoMo,MTS and Aircel.This led to a sharp fall in revenues and margins for all companies leading to severe underperformance of the telecom sector compared to the broader stock market.<\/p>\n
The 3G auction has become a bigger problem for the companies as buying spectrum becomes imperative for the larger companies to defend their market positions.This had led to a price bidding war resulting in auction prices which are far ahead of the government’s and analyst expectations.This will also severely impact the balance sheet which is already heavily leveraged\u00a0 by the sharp capex expansion in the previous years.The large outgo of cash for the spectrum promises to be a “Winner’s Curse” for some of the companies with heavy debt on their balance sheet.<\/p>\n
Vodafone Group Plc<\/a> and Bharti Airtel Ltd<\/a>. are among eleven companies that will pay more than $12.5 billion for high-speed mobile data licenses in India, fueling concern they won\u2019t recoup their investments.<\/p>\n
The auction for 93 licenses to bring data at third- generation speeds to India\u2019s 586 million mobile-phone users may end as early as this week, according to analysts including Rohit Chordia. Based on prices at the close of today\u2019s bidding, a company winning a license in each of 22 telecommunications zones would pay 140 billion rupees ($3.1 billion) for permission to operate a nationwide network, said Satyendra Prakash, spokesman for India\u2019s department of telecommunications.<\/p>\n
Internet usage may not be enough to offset the cost of the licenses for providers including Bharti and Japan\u2019s NTT DoCoMo Inc. in a market where monthly phone bills are about $5 per user, or about the same as a basic New York City MetroCard<\/a>. Revenues have declined as price competition has pushed call rates to lower than a penny a minute, while Bharti said this month only 5 percent of Indian subscribers currently use smartphones.<\/p>\n
\u201cIt seems to me that these guys are overpaying, that it\u2019s getting out of hand,\u201d said Saeed Baradar, an analyst at Societe General SA in London. \u201cIn India, with the rural population so significant, with voice being such an important part of revenue, well, at $2.8-$3.0 billion, you\u2019re really starting to stretch yourself.\u201d<\/p>\n
Bids by Internet<\/p>\n
Bidding started April 9 in an anonymous, Internet-based auction two years after the government first announced plans to sell the airwaves. The auctions will end when each of the local telecommunications zones have the same number of bidders as available licenses.<\/p>\n
India\u2019s government could trim half a percentage point from a deficit estimated at 6.8 percent of gross domestic product for the last fiscal year based on a projection of 350 billion rupees in auction proceeds, Nomura Holdings Inc. estimated in February. Since then, Minister for Information Technology and Telecommunications Andimuthu Raja had predicted the auction could reach 500 billion rupees. Bids exceeded that upper estimate May 7.<\/p>\n
Bharti, Vodafone\u2019s India unit, Aircel Ltd., controlled by Malaysia\u2019s Maxis Communications Bhd., Idea Cellular Ltd<\/a>., DoCoMo\u2019s Indian partner Tata Teleservices Ltd<\/a>., and a Reliance Communications Ltd. subsidiary put up 5 billion rupee deposits each on March 19, indicating an interest in all 22 zones.<\/p>\n
Shares Decline<\/p>\n
Shares<\/a> of Bharti, India\u2019s largest phone company by subscribers, fell 3.3 percent to 284.7 rupees at close of trading in Mumbai today. They\u2019ve lost 9 percent since the auction began in April, while Reliance Communications<\/a> has lost 16 percent, and Idea 12 percent. That compares with a 3.3 percent decline for the benchmark Sensex<\/a> index in the same period.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"
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