After prolonged drama and nagging delays, India has finally kick-started the 3G spectrum (radio airwave) auction process. The bidding for the long-awaited 3G WCDMA spectrum and WiMax (broadband wireless access) auction has officially commenced and the government has started inviting applications from mobile operators.

Interestingly, no applications were filed by the privately held telecom carriers on the first two days (March 15 and March 16). Instead, leading participants such as Bharti Airtel, Reliance Communications, Idea Cellular, Tata Teleservices and Vodafone Essar ? the Indian subsidiary of Vodafone (VOD) ? plan to wait till the last day (March 19, 2010) to submit their bids.

India’s Department of Telecommunications (DoT) is hopeful of getting a good response from the bidders on the last day. The DoT will auction 3?4 blocks of 3G wireless spectrum and two blocks of WiMax spectrum in 22 service areas (called “circles”) Incorporatedluding the lucrative Delhi and Mumbai regions.

Spectrum will be auctioned in the 2.1 gigahertz (GHz) band for 3G WCDMA and in the 2.3 GHz band for WiMax. The floor bidding prices for 3G and WiMax auction have been set at INR35 billion (US$716 million) and INR17.5 billion (US$360 million), respectively, per operator. Together, the 3G and WiMax auctions are expected to fetch at least INR250 billion (US$5.5 billion).

One block each in the 3G and WiMax spectrum has been reserved for the state-run Mahanagar Telephone Nigam Ltd (MTE) in Delhi and Mumbai and Bharat Sanchar Nigam Ltd (BSNL) in the 20 remaining circles. These entities will not take part in the auctions.

To bid in the 3G auction, applicants should hold a Unified Access Services (UAS)/ Cellular Mobile Telephone Service (CMTS) license or have previous experience in operating 3G services (directly or indirectly) or have undertaken to obtain a UAS license through a “New Entrant Nominee UAS Licensee” as per DoT guidelines. For WiMax, an entity holding a UAS/CMTS or an Internet Service Provider (ISP) license or one who has undertaken to obtain a UAS or ISP license can apply.

Foreign operators are permitted to participate in the auction. However, such entities must acquire a UAS/ISP license following the auction through an Indian company in which they hold a stake of at least 26%. Overseas carriers such as Telenor SA, NTT DoCoMo (DCM) and Emirates Telecommunications are expected to bid for the 3G licenses.

The limited number of available license slots for auction is expected to increase the bidding price. A fierce bidding war is expected in the metro service areas that house the high-income groups. Applicants can bid for one spectrum slot per circle in the 3G and WiMax auctions.

According to the Notice Inviting Application (NIA) issued by the DoT on February 25, the 3G spectrum would be granted to the top three bidders in 17 circles (out of a total of 22) Incorporatedluding India’s four metropolitan cities. The remaining five circles will have four players each.

The government will publish the ownership details of the applicants on March 23 and issue bidder compliance certificates on March 26. Pre-qualification of bidders will be held on March 30. Mock auctions will take place on April 5 and 6, followed by 3G auction on April 9, 2010.

The WiMax auction will start two days after the close of the 3G auction. Winning bidders have to pay for their licenses within 10 days following the auction closure.

Successful bidders will be allowed to launch commercial services in September 2010. Operators have to comply with deployment obligations by covering at least 90% of the metro service areas with 3G within five years from obtaining their spectrum licenses.

The upcoming spectrum auction will further boost wireless demand in the country, driven by the wider access to advanced data applications enabled by the 3G technology. India’s 3G subscriber base is forecasted to reach 50 million by 2012.

Zacks Investment Research

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