* Reliance was surprise entrant in current spectrum auction
* Reliance's entry into voice market negative for Bharti,
* Bid prices shoot up on Day 1 in 900 band in three key
* Indian government looks set to top $1.8 bln initial
By Devidutta Tripathy
NEW DELHI, Feb 4 If he bets big, billionaire
Mukesh Ambani will emerge from this week's Indian airwave
auction armed with spectrum that could make his Reliance
Industries Ltd a formidable rival to market leaders
Bharti Airtel Ltd and Vodafone Group PLC.
Even if he bids modestly, Asia's second-richest man can walk
away with airwaves that would allow his Reliance Jio to compete
in the cut-throat Indian market for basic phone services. The
company plans to offer 4G services but has yet to launch any.
Neither prospect is attractive for carriers that have been
enjoying increasing pricing power after years of razor-thin
margins. Shares in India's biggest cellular carriers lost
between 4-7 percent in a single day after Reliance threw its hat
in the ring for this week's auction and have yet to recover.
At the end of the first day of bidding on Monday, the
government received $7 billion worth of total bids and looked
set to top its minimum target of raising $1.8 billion initially.
"Reliance will get into voice, there is no doubt about
that," said Naveen Kulkarni, analyst at PhillipCapital India.
"With Reliance Jio entering, the competition again hots up.
That will mean a decline in tariffs. That essentially will mean
inability of incumbents to take tariff hikes," he added.
Reliance, which generates most of its $70 billion revenue
from energy and refining, returned unexpectedly to telecoms in
2010 by acquiring nationwide 4G permits. It has invested roughly
$5 billion in the business to date without seeing a return, to
the annoyance of some of its investors.
Reliance has disclosed little about its plans for 4G, but
with $14 billion in cash and telecoms in his blood, no one in
the industry is taking Ambani lightly.
India is auctioning airwaves in both the 1800 megahertz and
900 megahertz bands, and Reliance has unexpectedly opted to
compete for both, sources have said.
Spectrum in the 1800 Mhz range would enable Reliance to
offer voice services and improved coverage for its 4G Internet
service and bidding for the spectrum is expected to be
relatively modest given that there is plenty of it and it is
less efficient than the 900 Mhz bandwidth.
The real competition will be for 900 Mhz, which is in short
supply and is being auctioned in just three cities, including
Delhi and Mumbai, the two most important markets. The stakes are
especially high for Vodafone and Bharti which use 900 Mhz, but
which will see their rights to it expire in November unless they
buy in the auction.
It is possible that all three could end up with 900 Mhz
spectrum, but that would mean the valuable bandwidth is divided
three ways instead of two. Idea Cellular, India's No.3
carrier, is also expected to bid for 900 Mhz spectrum.
If Bharti or Vodafone loses out on 900 Mhz in a city where
they currently have it, they would need to build costly new
infrastructure to remain there.
"What gain it brings to Reliance is a different thing. It
causes a big loss to incumbents," said Kulkarni.
Bharti Airtel, the market leader, has more than $9 billion
in net debt and would dread an expensive bidding war or the need
to rebuild infrastructure in three key cities.
Individual company bids are not disclosed before the end of
the auction. Companies need to pay a quarter to a third of the
winning price upfront and remainder through 2026.
Prices for 900 Mhz bandwidth in Delhi rose about a fifth
from the floor price on Monday. Mumbai's rose 44 percent and
Kolkata's was higher by 39 percent, signalling an intense fight
in the auction that could run into next week.
BACK TO THE FUTURE
Mukesh Ambani founded what is now Reliance Communications
, India's fourth-biggest mobile carrier, but ceded
control to younger brother Anil after the bitter 2005 split of
the business empire they inherited from their father.
"They have the capability to do anything. Let's be very
clear about it," said B.K. Syngal, who headed a state carrier
and worked for Reliance's telecom business before the split and
is now a senior principal at New Delhi-based Dua Consulting.
Reliance did not reply to an email seeking comment on its
bidding and spectrum plans.
Reliance Jio plans to offer 4G service based on the TD-LTE
standard, which is different from what most western carriers use
for 4G, meaning fewer available devices and handsets.
Some observers have questioned the case for a 4G-only
network without voice in a market where more than 80 percent of
revenue is from basic phone calls. Reliance last year acquired a
permit enabling it to provide voice on 4G, but with an untested
The 1800 Mhz spectrum would complement Reliance Jio's
existing 4G LTE technology as there are 4G networks in other
countries using that spectrum band. Getting hold of 900 Mhz does
not help in 4G for now and would signal a drastic change in
"It doesn't make any sense to go for the 900 band unless
they say we are shifting our strategy and we'll go for a 3G
model," said Pankaj Agrawal, director at telecoms advisory firm
(Editing by Tony Munroe and Matt Driskill)