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

1. Telcos up as costly 3G auction ends;hurdles ahead
Thu May 20, 2010 3:03pm IST
By Sumeet Chatterjee and Devidutta Tripathy
MUMBAI/NEW DELHI (Reuters) - Shares in top mobile operators rose as much as 6 percent on
Thursday following 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 nationwide 3G footprint
were dashed by the expensive bidding.
"Eventually, telecom stocks will come under pressure. No one has got an all-India licence, still
the amount they are paying is not small. Their balance sheets will be stretched," said
Jagannadham Thunuguntla, equity head SMC Capital in New Delhi.
Morgan Stanley however 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 earnings could be hit due to high capital spending
for third-generation mobile spectrum and equipment as carriers roll out high-speed premium
services 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 rising 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 aggressive 3G
bidding was negative for the sector, as it would stretch balance sheetsand could dilute earnings.
Shares in Reliance Communications, the No. 2 firm gained 1.9 percent, paring its 5.8 percent
jump. Smaller rival Idea Cellular gained as much as 6 percent.
Call rates have slumped to as low as 0.7 U.S. cents per minute in a market with 15 operators and
about 600 million mobile users, making it the world's largest after China.

2. 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 benchmark 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 carriers -- Vodafone's India unit, Bharti and Reliance -- each won key
licences to offer 3G services in Delhi and Mumbai -- the biggest markets in the country.
Vodafone paid $2.5 billion for spectrum in an Indian auction that lasted 34 days and proved a
bonanza for the deficit-strapped government.
Nine private operators participated in the auction for three sets of licences, which ended with no
single carrier winning 3G spectrum in all 22 telecoms circles up for bidding.
Seven different carriers, including Idea Cellular and unlisted Tata Teleservices, ended up
winning spectrum. Japan's NTT DoCoMo owns 26 percent of Tata Teleservices.
Bharti, one-third owned by SingTel, blamed the auction format and severe spectrum shortage for
driving the bid prices "beyond reasonable levels" because of which the company could not get
3G spectrum in all mobile circles.
Macquarie said Bharti, which is absorbing its recent $9 billion acquisition of Zain's operations in
Africa, not winning in some key circles was the biggest negative surprise of the auction.