2nd UPDATE: India Broadband Bandwidth Auction Ends; Government Earns $8.23 Bln

11th Jun 2010 12:07

(Adds company, analyst comments, background) By Romit Guha, R. Jai Krishna and Kenan Machado Of DOW JONES NEWSWIRES MUMBAI (Dow Jones)--India's auction for bandwidth to offer broadband wireless Internet services ended Friday--after 16 days and 117 rounds--boosting government coffers by $8.23 billion as companies such as Bharti Airtel Ltd. (532454.BY) and U.S.-based Qualcomm Inc. (QCOM) bid to offer such services in the world's fastest-growing telecom market. Infotel Broadband Services Pvt. Ltd. emerged as the surprise package, provisionally winning a slot to offer broadband services in all the country's 22 service areas at a cost of INR128.48 billion ($2.74 billion), the department of telecommunications said on its website. Soon after the auction results were announced, Reliance Industries Ltd. (500325.BY), India's largest company by market capitalization, said it will buy a 95% stake in Infotel for about INR48 billion. After the buy, Infotel will be a unit of RIL. Other provisional winners include the only foreign company in the fray, Qualcomm--which bought four areas for INR49.12 billion; Bharti--four areas for INR33.14 billion; Aircel Ltd.--eight areas for INR34.38 billion; Tikona Digital Networks Pvt. Ltd.--five areas for INR10.58 billion; and Augere (Mauritius) Ltd.--one area for INR1.25 billion. The provisional results need to be approved by the government. The Indian government had put on the block two slots of bandwidth to offer wireless broadband internet services in the country's 22 service areas. The auction will let winners offer high-speed Internet access, as well as Internet telephony and television services. More importantly, the winners can eventually use the bandwidth for voice and high-speed data services, amid uncertainty over the granting of second- and third-generation radio bandwidth in the future. Qualcomm said it plans to exit the venture after creating an LTE (Long-Term Evolution) network to roll out broadband wireless access, or BWA, services. LTE is a technology that offers high-speed broadband and high-end multimedia services "Qualcomm will soon announce its Indian partners in compliance with the applicable Indian foreign direct investment regulations," the company said in a statement. Prices "Went Beyond Rational Levels" The intense race--11 bidders for two slots in each area--drove the bid price for one slot to offer broadband wireless Internet services across the country to INR128.48 billion, more than seven times the INR17.50 billion starting price. Among the major bidders, Reliance Communications Ltd. (532712.BY), which had bid through a unit, Vodafone-Essar Ltd., a unit of the U.K.'s Vodafone Group Plc. (VOD.LN), and Idea Cellular Ltd. (532822.BY) dropped out of the race. Both Reliance Communications and Vodafone Essar said they had stepped away from the auctions due to high bid levels. "The prices for the BWA licenses have gone through the roof. It will be difficult for companies acquiring licenses at the prices to justify a business case," said Mritunjay Kapur, managing director, Protiviti Consulting Pvt. Ltd. "On a pan-India basis, a subscriber base of 55 million-65 million would be required to build a reasonable business case," he said, adding it may about take four to five years for companies to break even. "At the current price levels, it seems that the companies are acquiring a spectrum with a long-term view of using spectrum in various scenarios (such as when fourth-generation services are launched)," Kapur added. Total Government Windfall Of $22.7 Billion The government said it will earn INR385.43 billion ($8.23 billion) from the auctions, including payments by state-run Bharat Sanchar Nigam Ltd. and Mahanagar Telephone Nigam Ltd. (500108.BY), which were given bandwidth before the auctions but now must match the winning bids. Together with the INR677.19 billion it received from the auctions of third-generation, or 3G, bandwidth, the government has generated about INR1.063 trillion ($22.7 billion) from the two events, compared to the INR350.00 billion it had estimated in its federal budget. The windfall revenue from the broadband and 3G auctions is likely to part-fund government payouts toward food, fuel and fertilizer subsidies and also help shrink the fiscal deficit. The government is pushing to increase broadband usage in a country where broadband Internet services are still in their infancy: only nine million of the country's more than one billion people have access to such connectivity. India's telecom regulator, in a paper issued June 10, estimated the country to have about 48 million broadband users by 2012, and about 100 million by 2014. -By Romit Guha, R. Jai Krishna and Kenan Machado, Dow Jones Newswires; +91-9967586928; [email protected] (END) Dow Jones Newswires June 11, 2010 07:07 ET (11:07 GMT)