But perhaps the biggest winner from the auctions is the government. The Finance Minister spoke of having more “elbow room” to tackle the fiscal deficit, considering the auction proceeds are already nearly double the figures budgeted ahead of the BWA auctions. It can be safely assumed that significant portions (if not all) of these funds will be used to reduce the fiscal deficit as per the minister’s stated goals. However, we are hopeful that at least some of the proceeds will go towards the spectrum re-farming fund that the Telecom Regulatory Authority of India (TRAI) has proposed for investment back into the sector.
The Indian mobile sector now stands at a key inflection point as it begins the long, slow transition from volume to value growth. Despite the intensely competitive environment and regulatory uncertainty, all of the winning bidders have made strong bets on the Indian mobile sector and are clearly here to stay. The fragmented 3G coverage maps will have to be filled in at the next auction round in 2014.
Individual operators will feel varying degrees of financial pressure. Operators will now have to work hard to realign their balance sheets to cope with the rising debt levels that will result from the raising of capital required for 3G network deployments, and other prospective costs such as increased license fee burdens. Operators such as Bharti, Vodafone, and MTNL have strong cash reserves and are well placed to absorb rising debt-to-equity ratios. Reliance, Idea, and Aircel will be more dependent on external borrowings to finance their respective deployments and maintain momentum.
The key will be to quickly drive revenue growth from 3G services. 3G will provide operators with an opportunity to break out of the vicious circle of price competition with differentiated, data-centric services. The lower cost of providing voice will also help margins and provide capacity relief. Moreover, time to market for 3G services will be shorter than the global norm, since networks are mostly 3G-ready and devices have already been pre-seeded in key circles.