Indian Wireless Spectrum Bids Total Unexpectedly High $11 Billion

Further ratcheting up the stakes in the fast-growing and intensely competitive Indian wireless market,

telecom companies bid nearly $11 billion for spectrum designated for high-speed data services.

The final tally of a frenzied monthlong auction concluded at nearly twice the amount that the government had expected,

a sum that many analysts had previously said might itself be too ambitious.

The rich haul should help the Indian government pare its significant fiscal deficit, a source of concern for many investors.

But the high price will probably further strain the finances of telecom companies whose profits have fallen in recent months as competition has driven down the price of calls,

in some cases to just 0.6 American cents a minute for local calls.

With more than 580 million subscribers, India is the largest wireless market after China.

More than 20 million new wireless accounts were created just in March,

thanks to cheap calling plans, competition from as many as 12 providers in some cities and an aggressive push by phone companies into rural India.

Vodafone, the London-based company, wrote down by more than 25 percent the value of its Indian operations

after paying $11 billion for a majority stake in it just three years ago.

In the bidding, Vodafone won spectrum in nine regions, including Delhi and Mumbai, for $2.5 billion.

Seven companies submitted winning bids for a total of 71 licenses, pledging to pay 509 billion rupees ($10.9 billion).

The auction results will also determine the price two state-owned phone companies, MTNL and BSNL, will pay for spectrum they have already been allotted.

Taking those payments into account, the government said it would earn 677 billion rupees ($14.6 billion),

compared with the 350 billion rupees it had estimated earlier this year.

Bharti AirTel, which is India’s biggest cellphone company and recently signed a deal to buy a large African mobile operation,

spent the most for the spectrum, bidding $2.6 billion for airwaves in 13 regions, according to this article in the New York Times.

Another big Indian company, Reliance Communications, bid $1.8 billion for airwaves in 13 regions.

Shares in Bharti AirTel fell 3.1 percent and Reliance Communications closed down 5.7 percent on Thursday.

Though the spectrum is intended for high-speed services known in the industry as third-generation, or 3G,

most companies are likely to use the airwaves primarily to carry phone calls and text messages.

Data remains a niche application in India, where most people spend just a few dollars a month on wireless service.

Telecom companies have struggled in recent months to deliver reliable service to customers

after the Indian government began reviewing telecom equipment purchases last year, citing security concerns.

Many carriers desperately need to increase capacity for new customers, which may have driven up bids in the auction.

In a statement, Bharti Airtel, said “the auction format and severe spectrum shortage along with ensuing policy uncertainty drove the prices beyond reasonable levels.

"As a result, we could not achieve our objective of pan-India 3G footprint in this round.”