India’s cellphone operators are snatching up precious bandwidth in a government sale, paying top dollar for spectrum to roll out high-speed coverage across the country. The fear among investors is that the companies’ balance sheets might now be under pressure.
The government had raised a record 1.07 trillion rupees (US$17.07 billion) by the end of bidding on Tuesday in an auction that began on March 4.
That is almost a third more than what the government had forecast for the entire duration of the auction, which is set to end this week. Analysts estimate most of the bids were from the country’s biggest players.
For the government, the money raised will help plug the fiscal deficit. For India’s wireless carriers, the auction is the only way to renew expiring 20-year leases and build the extra capacity needed ahead of an anticipated surge in mobile data consumption as more Indians use mobile phones to go online.
However, whether the carriers, including Bharti Airtel Ltd and Idea Cellular Ltd, can recoup the huge sums of money spent on bandwidth will depend on the moves of Reliance Industries Ltd, controlled by billionaire Mukesh Ambani. The entry of the deep-pocketed conglomerate is expected to heighten competition and keep a lid on tariffs in an already cutthroat market.
“The point is that the operators have no choice but to bid to retain spectrum,” IDBI Federal Life Insurance Co Ltd chief investment officer Aneesh Srivastava said. “My concern is whether the companies have got pricing power [to repay the debt incurred] or not.”
Fierce bidding in the premium 900 megahertz (Mhz) band in particular, where most of the top companies see some licenses expiring this year, is set to prove a heavy cost for wireless carriers, already among the most leveraged among Asian rivals.
Idea, for instance, is expected to hold on to 900Mhz spectrum in nine regions which account for 72 percent of its revenue. However, analysts estimate that to renew all its licenses it would have to spend close to 300 billion rupees.
The company’s net debt stood at US$1.77 billion at the end of last year and is expected to rise to about US$3.08 billion in the year ending in March next year, according to Thomson Reuters data.
The mobile carriers participating in the auction are not allowed to speak to the media during the sale.
Among the companies in the auction are the India unit of Vodafone Group PLC and Reliance Communications Ltd, controlled by Ambani’s brother, Anil.
Final allocations are to be confirmed at a later date.
“It’s going to be very difficult for companies to make any dramatic changes in tariffs, because the fact is that companies face a very competitive market,” telecom consultancy firm Com First’s director Mahesh Uppal said.
Shares in Idea and Bharti have climbed 14.6 percent and 10.7 percent respectively since the auctions started, as investors bet that short-term pain to hold on to key licenses will mean long-term gain.
“Maybe their debt levels will be high for two years, but beyond we start to see them stabilizing, once the revenue starts to grow,” an industry consultant who is advising one of the bidding companies said.
He said companies could see “significantly” more data revenue after 2017.
“Prices will go down, but the usage and adoption will go up substantially,” he said.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by