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27 January, 2015 08:52 IST
Telecom: Auctions speak louder than words
Source: IRIS | 16 Nov, 2012, 05.26PM
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The Indian Telecom sector these days is going through a couple of nerve racking events that we will call as 'growing up pains'. 

News Updates:

Nov. 15, 2012: The Telecom 2G spectrum auctions closed, with 57% of spectrum unsold due to high minimum bid prices, poor industry conditions and availability of spectrum with the older players. Rs 94 billion were collected from 5 firms, against the target of Rs 400 billion.  The winners were Vodaphone (14 circles), Idea (8), Telenor (6), Videocon (6) and Bharti Airtel (1).

Oct. 10, 2012: The Parthasarathi Shome committee set up by the government said retrospective amendments in tax laws targeting overseas M&A of companies with assets in India, should be scrapped. The recommendation is expected to bring major relief to British telecom giant Vodafone in its dispute with the income-tax department.

Feb. 2, 2012: the Supreme Court cancelled the 122 licenses issued in Jan 2008 by former telecom minister A Raja. It also directed the TRAI to make fresh recommendations for the telecom spectrum auction in future.

May 19, 2010: The 3G auctions end with resounding success. After intense bidding, the auction collected 68,000 crores from 7 private and 2 govt players, about double the initial target.


The limited success of the November 2012 auctions will have a strong impact on telecom regulation in India. Hopefully the government/ regulators will turn their attention to improving the health of the industry, reducing friction, litigation and excessive controls and restrictions.

Auction will continue to be the method of handover of telecom licenses and spectrum in the future. The difference is that the reserve prices, and total income from auctions will reflect realistic telecom market conditions and industry health. 

The market has changed completely in the last 2.5 years. The sector has gone from:

In 1990-1999
Mobile Introduction and Launch
Low penetration, high call charges

Massive industry revenue growth and profitability
Subscriber growth and Increasing penetration
Profitable for 5-6 operators even with declining call charges
2G services only on GSM and CDMA

2011- 2012
Hypercompetition with 12-15 operators
Regulatory overhand
High Penetration
Slowdown in subscriber adds
Industry sees revenue growth but profits disappear
Call charges at rock bottom.
2G, 3G  and CDMA services

Consolidation of Industry with reduction to 6-8 players, reduced competition
High Penetration
Low subscriber adds
Call charges recover and rise
Industry revenues growth slows, profits rebound
BWA services added
Decline of CDMA

Action Point: Bharti Airtel, Idea, Tata Tele, Reliance Comm and MTNL are listed. Of the above five, we are positive on Bharti Airtel and Idea.

(Contributed by Punit Jain, founder, JainMatrix Investments)

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