Potential acquirers build war chests for Loop's Mumbai spectrum

New Delhi: The 900 mhz spectrum band could become the next battleground in upcoming auctions. The Department of Telecom (DoT) is standing firm on its position that telecom companies which hold this spectrum in three key circles of Delhi, Mumbai and Kolkata need to return it on expiry of licenses. These licenses come up for renewal in 2014. And if they want, they can buy this spectrum back at much higher prices during the auctions next month. It is widely expected that Bharti Airtel and Vodafone will retain their respective 8 mhz holding each in this spectrum band in Delhi and some newbies will try and also place bids. But in Mumbai, an interesting battle could ensue.

[caption id=“attachment_655955” align=“alignleft” width=“380”]  Why is the Loop’s spectrum so attractive? Well, to begin with the company has been looking for a strategic financial investor to fund license renewal next year. It may even look at a sell off - all options are on the table. AFP[/caption]

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Analysts say for Mumbai, Loop could hold the key to a winner. Loop Mobile holds 8 mhz spectrum in this band for the Mumbai circle, claims 9 percent revenue market share and has about 400 employees on its rolls with 3.2 million customers. And incumbent telcos are already apparently building their war chests to get this 900 mhz spectrum from Loop. Potential contenders for Loop could be Bharti Airtel, Vodafone, Reliance Industries and Idea Cellular though the company may eventually align with an strategic PE investor.

Why is the Loop’s spectrum so attractive? Well, to begin with the company has been looking for a strategic financial investor to fund license renewal next year. It may even look at a sell off - all options are on the table.

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A note to clients from IIFL says Loop’s 8 mhz spectrum holding in Mumbai isexpectedto be converted into 3G by a new player. Well, since no 3G auctions are on theimmediatehorizon, it makes sense for telcos to buy up spectrum (which has been liberalised) in the upcoming auctions and use it for 3G or third generation services. The January auctions will offer 1800 mhz and 900 mhz spectrum - and 900 mhz spectrum is quite well suited for 3G services. Hence the interest among various telcos to consider buying Loop or acquiring a strategic financial stake in it so that the lay their hands on this precious spectrum.

A Loop spokesperson told Firstpost “Loop Mobile has 9% revenue market share, high quality equity of postpaid and corporate customers in Mumbai and it shall be continuously safeguarding interests of employees, customers, partners”.

In the note to clients, IIFL analysts said “In Mumbai, Loop’s 8 mhz will likely be converted to 3G by the winner. The three top contenders would be Bharti, Idea and Reliance Industries. We think Idea has the biggest incentive to win 900 mhz”.

Separately, industry watchers say Bharti will also be keen to buy up this spectrum but till valuations are finalized, no bidder will put its hat in the ring.

It is pertinent to mention here that Loop’s investor Khaitan Holdings (KHML) had earlier dragged the Indian government to international arbitration, seeking close to $2.5 billion in damages for its cancelled telecom licenses. KHML lost 21 of its telecom permits after the Supreme Court cancelled 122 licenses awarded by former telecom minister A Raja last year.As per earlier records, KHML holds 26.95 percent stake in Loop and paid a cash entry of Rs 1,454.94 crore besides providing financial guarantees worth Rs 812 crore. So Loop certainly won’t come to any incumbent telco for a song.