3G – Bidding Strategies

The recent 3G auctions saw various operators compete fiercely for the three licenses to operate 3G in 22 circles in India. The government raised a whooping Rs 67,719 crores from the process. The bid values exceeded the DoT expected valuation of 2x to 3x the reserve prices and the average bid was 4.8x the reserve price (representing Rs.16,571 crore for a pan-India license). Finally, none of the operators bid for the pan India licenses but opted for select circles. In this article we try to analyze the strategy behind the choice of circles by the bid-winning operators.

Bharti Airtel

Bharti Airtel, India’s market leader, won 13 circles which cover 59% of India’s cellular subscribers—the maximum 3G-coverage any telecom operator has managed. These circles account for 61% of Indian telecom revenues. The nine circles where Bharti has lost the license, its ARPU is 15-20% lower than the national ARPU. Bharti has a unique advantage that large parts of its networks are already 3G-enabled lowering deployment time and capex required.

Vodafone

Vodafone India seemed to have followed a ‘defensive’ strategy like Bharti, by acquiring spectrum in key markets, 9 circles for Rs 11,617 crores, while foregoing a few big circles where it does not enjoy leadership or has a substantial difference to the leader like Karnataka and Rajasthan. Vodafone’s strategy clearly seems to be focusing the entire kitty that they have on the top circles so as to actually make a meaningful business out of the 3G friendly circles or circles with uptick.

Reliance

Reliance Communications (RCOM) bagged 3G-spectrum in 13 circles including all the metros and category ‘C’ circles. Reliance Communications put up an aggressive show in the 3G auctions implying that RCOM may dilute equity to fund the payout. The tower business looks to be the likely source of dilution. The company plans to strongly leverage its media, gaming, cinema and broadcasting capabilities to offer its customers a unique 3G-experience.

Aircel

Aircel, 74% owned by Malaysia’s Maxis, with a strong presence in Southern and Eastern India concentrated on circles like Tamil Nadu and the North-East. Its main focus was to ensure contiguity – presence in all the southern circles and Assam, West Bengal, Bihar and Orissa. Aircel’s strategy helped it to defend 93% of its revenues. Airtel and Aircel won 13 circles each but Aircel paid only half of that paid by Airtel. Aircel’s bid is still aggressive at 1.5 times its annual revenues.

Tata Tele

Tata Tele was able to capture only 9 circles, which are mostly in category A and B, enabling it to protect its presence in 43% of it 2G revenue-generating areas. Tata Tele’s 3G coverage of its 2G footprint is the lowest among the six successful bidders. Tata focused on obtaining contiguous licenses in the Western parts of India, while avoiding Category C circles to maximize capex utilization.

Idea

Idea Cellular, the 3rd largest GSM mobile service operator won 3G spectra in 11 circles. Idea went for higher geographical coverage and avoided the metros, especially Delhi and Mumbai, which saw the most aggressive bidding. It managed to win licenses covering 77% of its subscriber base and its 3G Spectrum footprint covers 81% of the total national revenues.

CDMA operators viz. Reliance and Tata Tele plan to leverage the EVDO services already available on their CDMA network. EVDO services are ones that are available on data cards and are almost equivalent to 3G services. Their strategy would be to combine the prowess of CDMA and GSM technologies to provide seamless high-speed data access on dual mode handsets.

With none of the private teleco’s having a pan India 3G presence, roaming agreements between the different operators would play a vital role in recovering the huge license bid amounts. The state owned BSNL and MTNL are in huge demand as parents for roaming agreements.

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3 thoughts on “3G – Bidding Strategies

  1. Great articles that help us keep track of important happenings! Just one request: If you explain the not-so-common terms, we can assimilate the articles better. E.g. The bid values exceeded the DoT expected valuation of 2x to 3x the reserve prices and the average bid was 4.8x the reserve price.Would have helped if you had explained what a 'reserve price' means.

  2. If I'm not mistaken, reserve price is the minimum price which was set by the DoT which Telecom Companies had to bid. It was something like 3500 crores I think. I do agree with Mihir though, if the short forms used could also be defined, it would be of great(er) help!

  3. @ Miheer and Divya: Indeed the definition given by Divya is correct. Also, we will make an attempt from now on to also explain the technical terms we use, but in case we falter do so, let us know and we will explain it in subsequent discussions via comments.

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