Many surprises in revenue ratios

Both the auctions for 3G and BWA were highly successful,and against the expectation of a total Rs 35,000 crore,the government earned Rs 1.06 lakh crore. This amount may seem high in relation to the expectations,but for a 20-year licence,it forms just about 3 of the estimated sector revenues over that period. Also,the government earning from 3G and BWA spectrum works out to around 20 per capita population estimated at 1.17 billion and that is much lower than 600 per capita realised from similar auctions by the UK and Germany way back in 2000.

Here is what the circles won for 3G rollout would mean to telcos. The results of 3G auction,seven private players have won the 71 slots offered across 22 circles and BSNL/MTNL get one slot in each circle at a price found by the auction. In terms of coverage,BSNL and MTNL together cover the entire area and population of the country. Aircel,Bharti,RCom,Idea and Tata all would cover about 55 of the countrys area,but their population reach varies from a low of 46 for RCom and Tata to a high of 61 for Aircel. On this front,Vodafone could have an advantage of addressing 42.8 of the population by covering little over 30 in area.

Ratio A in the table is a ratio of total bid amount for the circles won by a telco to the monthly wireless revenue of those circles covering all service providers. This is an indicator of how a telcos bid compares with the revenue potential. S Tel has the best ratio of 0.61 for the three circles it has won,meaning that its licence fees add up to merely 61 of the total monthly revenue of those circles. On the other extreme is MTNL with its 3G fees amounting to seven months wireless revenue of Mumbai and Delhi metro circles. While Aircel,Idea and BSNL seem well placed on this parameter,Vodafone may find its bid little high as compared to the revenue potential of its nine circles.

Ratio B,compares the bid amount with bidders own revenues from the circles won and denotes the winners strength in those circles. Idea is best placed on this count with its 3G commitments amounting to less than nine months of its wireless revenue from the circles it has won. MTNL,however,would be under severe pressure as it pays more than five years of its wireless revenue from Delhi and Mumbai towards licence fee for 3G spectrum in metros. Tatas also may have to stretch a bit,as they pay nearly two years of their wireless revenue from nine circles as the cost of 3G spectrum.

Thus,auction hammers may have hit a happy note for the government in bringing down the deficit,but 3G bids may ring in different tunes for telcos in their third generation battle.

The writer is an alumnus of IIM-Bangalore