Telcos up as costly 3G auction ends; hurdles ahead

Shares in India's top mobile operator rose as much as 6 percent on Thursday next the end of a frenzied auction for 3G mobile licences, but the cheer may be short-lived.

The auction yielded the Indian government $14.6 billion in revenues, nearly twice what it had expected. Top Indian carrier Bharti Airtel said its hopes of securing a countrywide 3G footprint were dashed by the luxurious request.

"Eventually, telecom stocks will come under force. No one has got an all-India licence, still the quantity they are paying is not small. Their balance sheet will be stretched," said Jagannadham Thunuguntla, equity head SMC Capital in New Delhi.

Morgan Stanley nevertheless raised its view on the sector to "in-line" from "cautious" after the auction ended, and said it did not expect any more cuts in tariffs in the world's fastest-growing but highly competitive telecoms market.

Some analysts said telecom firms' near-term pay could be hit due to high capital expenditure for third-generation mobile spectrum and gear as carriers roll out high-speed premium armed forces later this year.

By 1:16 p.m. (0747 GMT), shares in Bharti, which is paying $2.6 billion for wireless spectrum, were up 1.2 percent at 262.60 rupees, after increasing as much as 2.4 percent in a broader market up 1 percent.

HSBC cut its target for Bharti's shares to 250 rupees from 270 rupees and said the violent 3G bidding was negative for the division, as it would stretch balance sheetsand could dilute pay.

Shares in Reliance infrastructure, the No. 2 firm gained 1.9 percent, pare its 5.8 percent jump. lesser rival Idea Cellular gained as much as 6 percent.

Call rates have drooping to as low as 0.7 U.S. cents per minute in a marketplace with 15 operator and about 600 million mobile users, making it the world's major after China.

Bharti and Reliance shares have lost more than 20 percent so far this year, making them the fourth and fifth worst performers in India's 30-share standard index. They were the only stocks that fell last year in the main index, which jumped 81 percent.

NO CLEAR WINNER

India's three biggest carrier Vodafone's India unit, Bharti and Reliance -- each won key licences to offer 3G services in Delhi and Mumbai -- the biggest markets in the kingdom.

Vodafone paid $2.5 billion for range in an Indian sale that lasted 34 days and proved a top prize for the deficit-strapped administration.

Nine private operators participate in the auction for three sets of licences, which broken with no single carrier winning 3G spectrum in all 22 telecoms circles up for request.

Seven different carriers, counting Idea Cellular and unlisted Tata Teleservices, ended up charming spectrum. Japan's NTT DoCoMo owns 26 percent of Tata Teleservices.

Bharti, one-third owned by SingTel, blamed the auction format and severe range shortage for driving the bid prices "beyond sensible levels" because of which the company could not get 3G range in all mobile circles.

Macquarie said Bharti, which is engrossing its recent $9 billion attainment of Zain's operation in Africa, not winning in some key circles was the biggest negative surprise of the public sale.