3G auction - Finally, it's over

The aggregate value of a pan-India licence might appear high and global analysis confirms this.

The UK (2000) and US (2008) 3G auctions continue to hold the record for highest individual 3G licence values – each auction resulting in a top licence value of around $9.4 billion.

In the Middle East, Zain bid $6.1 billion for a 3G licence in Saudi Arabia in 2007.

In Africa, the record goes to Etisalat and a $2.9 billion licence value for Egypt.

Compliments must be extended to the government of India and their advisers, Rothschild and DotEcon.

The objective of revenue maximisation from the auction process was definitely achieved.

But what is good news for the government of India might not be good news for the Indian telecoms.

However, let's first of all focus on the positives.

Much needed newly allocated spectrum will give operators the flexibility to use the spectrum for both 3G and existing 2.5G services.

This is vital for Bharti Airtel and Vodafone Essar in Delhi and Mumbai where there have been capacity issues for these operators for quite some time.

What the analysts are saying

Once 3G services are rolled out on a widespread scale in India, there will be an inevitable "wow factor". This will be good for the country in general and also for the operators able to offer these services.

Finally, auction winners will have a strategic asset. 3G spectrum makes these operators highly attractive as potential industry consolidators.

Unfortunately, though, there are a number of negatives.

Firstly, operators have had to take on more debt to pay for the licences. This will stretch balance sheets and impact bottom lines due to the higher interest costs.

Secondly, experience from Europe shows that higher upfront licence fees can equate to delayed network capital expenditure. This is potentially bad news for the network equipment suppliers who were factoring in sizeable 2010 and 2011 orders.

Thirdly, it is possible that consumers could lose out from the higher licence costs through having to pay higher tariffs for the value-added 3G services.

Operators will have based their business plan forecasts on certain licence values. Greatly increased licence costs will have to be offset by higher revenues to make business plans viable.

Finally, time will tell whether the successful operators have overpaid for the licences and the value transfer from industry to government will have been too great.

If so, substantial goodwill write-offs could be required in the future, again based on the experiences of the European 3G auctions.

All in all, though, there is a collective sigh of relief that the 3G auction process has finally been completed after so many months of delays.

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The winners can now begin the implementation of their network expansion and enhancement plans.

The losers will start thinking about the dating game with other operators, especially in the circles where they will have no 3G spectrum.

This will lead to the next phase in Indian telecoms, which will be one of the most fascinating yet - the process of consolidation.

Tony Worthington is the Global Head for Telecoms, Media & Technology at Standard Chartered Bank. The opinions expressed are his own