New Delhi: Idea Cellular of the Aditya Birla group could well spring a big surprise during the upcoming 2G spectrum auctions. Contrary to popular belief, the telco may actually bid for all 22 circles, and not in the circles where its licences were cancelled. Analysts have come to this conclusion today after noting that the company has deposited the highest earnest money amount for the auctions among all potential bidders, which is a pointer to Idea being potentially the most aggressive bidder this time.
According to data released by the Department of Telecom (DoT), Idea has deposited Rs 1,306.75 crore for spectrum in the 1,800 Mhz band, the highest amount by any telco. An independent analyst pointed out that this could make Idea the most aggressive bidder. “They have submitted earnest money deposit of Rs 1,306.75 crore. This gives them the potential to bid for four slots in the circles where they have lost their licenses, and two slots in almost all the other circles. Hence, Idea can bid to the maximum possible potential if they want to,” this analyst said. He also pointed out that Idea has deposited almost 97 percent of the maximum possible EMD so the company would bid for most circles.
A report by Credit Suisse this afternoon also supports this theory. It says, “Contrary to media reports, this latest data (released by DoT) shows that Idea is keen on bidding in all 22 circles to the maximum extent that it is allowed to bid (as a new entrant or incumbent, as the case may be) even in Delhi/Mumbai. We believe this could be a negative impact on the company’s financials near term.”
Credit Suisse is not the only one to warn Idea against getting overenthusiastic on the auctions. HSBC Securities’ Rajiv Sharma and Tucker Grinnan had said last week that they expected Idea to bid for only all the impacted circles in the auctions. “However, participation beyond the impacted circles would be negative for the stock as it would aggravate balance-sheet concerns.”
After the Supreme Court judgment on cancellation of licences this February, Idea’s licenses were cancelled in seven circles and till last week, the company was widely seen as having put in applications for only these seven circles.
So what has prompted Idea to get so aggressive to bid in a market where almost every other player (with the exception of Videocon Telecom) has shown a tepid response due to the steep pricing of airwaves?
An Idea Cellular spokesperson declined to comment on any details related to its participation in the upcoming auctions.
In a note to clients last week, four analysts of Goldman Sachs had said: “For Idea, it is evident that interest is only for seven circles – exactly the number of circles where its licence was cancelled. At the reserve price, this translates into a total impact of US$ 370 million, or Rs 6/share for Idea.” But now that Idea’s aggressiveness has come to light, perhaps all these estimates would have to be altered drastically.
The Credit Suisse report quoted earlier has also noted that in the upcoming auctions, total demand for spectrum is short of supply on a nationwide basis, “though it is difficult to say which circles will see tame bidding. It is possible that the metro circles (Delhi most likely, Mumbai less likely) which accounted for nearly 40 percent of the spectrum auction value, could see slackness in demand from applicants.”
Credit Suisse has opined that perhaps reserve prices could be brought down in some circles, but added that “we recall comments from secretary of DoT a couple of weeks ago that the auction will go through given the current bids”. So the suspense over the auctions remains.