Reliance Industries` surprise entry into an auction for mobile phone spectrum has raised the prospect of fierce bidding, intensifying competition in a crowded cellular market that has seen margins improve after a lengthy price war.
New Delhi: Reliance Industries` surprise entry into an auction for mobile phone spectrum has raised the prospect of fierce bidding, intensifying competition in a crowded cellular market that has seen margins improve after a lengthy price war.
Reliance, controlled by India`s richest man Mukesh Ambani, sits on a cash pile of nearly USD 15 billion, which gives it an advantage at the spectrum auction over rivals like market leader Bharti Airtel, which had nearly USD 10 billion in debt as of end-September.
Reliance also already owns a nationwide licence for high-speed 4G mobile phone networks, which it won by outbidding rivals three years ago. The service, by its Reliance Jio Infocomm unit, has yet to be launched.
"The immediate impact is that of intense competition in auctions," Credit Suisse analysts said in a note.
"The longer term impact could be increased competition and higher capex for incumbents," the brokerage said, downgrading shares in Bharti Airtel and third-ranked Idea Cellular.
Shares in Bharti Airtel and Idea tumbled on Thursday, largely due to Reliance`s application to bid. Bharti stock closed 4.8 percent lower, its biggest drop since September last year, while Idea Cellular tumbled 7.2 percent, losing the most since May 2010.
Reliance on Wednesday joined seven carriers including Bharti, Vodafone and Idea to bid for spectrum in the auction. India hopes to raise at least USD 1.8 billion during the fiscal year to March from the auction which is scheduled to start on February 3.
Reliance gets most of its revenue from oil and gas. The spectrum bands it applied to bid for would enable the company to provide basic cellphone services, which account for more than 80 percent of industry revenue in India, a country where call rates are among the cheapest in the world.
Most Indian telecom operators saw razor-thin margins improve slightly last year after they were able to raise call prices, helped by a court order that revoked permits of some smaller carriers, which were forced to scale back or shut down.
Two bands of frequencies -- 900 megahertz and 1800 megahertz -- will be sold. Bharti and Vodafone want spectrum in the 900 MHz band to renew permits in key cities like Delhi and Mumbai but they could also use the spectrum for 3G services.
Reliance Industries could use the 1,800 MHz band to offer cellphone services or a different kind of 4G network. With the 900 MHz spectrum, it could provide 2G as well as 3G mobile services.
Reliance aims to buy spectrum in both bands as 900 MHz is not available beyond Delhi, Mumbai and Kolkata, said a person familiar with the company`s plans who declined to be named as he is not authorised to talk to the media.
Reliance already has deals to share infrastructure with both Bharti and Reliance Communications , which is controlled by Mukesh Ambani`s brother, Anil Ambani.