Norway’s Telenor emerged on Wednesday as the biggest buyer in India’s controversial mobile telecom spectrum auction.

But its total bid of Rs40.2bn was nowhere near enough to save the government from disappointment, with the sale raising only Rs94.1bn overall – less than a quarter of the Rs400bn target.

Bidders stayed away altogether from bidding for New Delhi and Mumbai, the two biggest cities, scared off by the high minimum prices. Nor did they bid for any of the CDMA (Code Division Multiple Access) band on offer, going only for the more popular GSM (Global System for Mobile Communications) spectrum.

The 2G auction was held this week after the Supreme Court cancelled 122 2G licences issued in an untransparent 2008 sale, which led to a financial scandal over the low prices paid.

Telenor, which was one of the largest bidders in the 2008 round winning licences in 21 areas, will now be exiting the mobile market in Mumbai, Kolkata and West Bengal after failing to win spectrum licences in these places. It said in advance that it would bid in only nine areas, but when the results were published on Tuesday it emerged it had won licences in only six.

As for the other four eligible bidders, billionaire Kumar Mangalam Birla’s Idea paid Rs20.3bn for 30 blocks; Videocon spent Rs21.3bn on 22 blocks; UK-based Vodafone paid Rs12.95bn for 23 blocks; and Bharti Airtel Rs87m on one block.

Telenor originally entered India in a joint venture with Unitech, a local property company, in a partnership called Uninor. The partnership disintegrated this year as the two companies fell out.

Telenor is now working in partnership with Lakshdeep Investments & Finance – a personal financial investment by Sudhir Valia, a director at Sun Pharma. At the close of Tuesday’s auction, the partners’ new entity, Telewings Communications, had won spectrum licences in Andhra Pradesh, Uttar Pradesh East, Uttar Pradesh West, Bihar, Gujarat and Maharashtra.

Telenor said in a statement:

With a total population of about 600 million people and an actual mobile phone customer penetration of just 40 percent, these states represent a strong growth opportunity.

Akhil Dattani, a JP Morgan analyst, said: “Telenor have re-acquired spectrum in the six circles we expected. We had predicted the company would not bid for spectrum in Mumbai due to both the high reserve price as well as the high level of competitive intensity across the region. The other two circles Telenor did not acquire spectrum in are Calcutta and West Bengal which are less material, accounting for only around 6m of their total 42m customer base across India.”

In terms of the price Telenor paid, Maurice Patrick, telecoms research analyst at Barclays, told beyondbrics: “What they’ve bought is very close to the reserve [lowest] price, which positions them well to continue operations in the company within the financial targets they set themselves.”

The company reassures its 34m customers that it will seamlessly transfer its business assets from Uninor to Telewings. For those in the three regions it is exiting, the impact won’t be as big as you might think. Indian has a multi-provider market and Telenor isn’t the primary provider for many of these customers, so they can easily switch to another provider.

According to Alexander Wisch, an equity analyst at S&P Capital IQ Research, Telenor won’t lose out by covering a smaller area. Telenor sees most of its traffic within states, so it doesn’t need a pan-Indian operation. It can focus on those regions where it gets a quicker and better return on capital.

Perhaps the most important implications of this auction are the fact that these licences are mostly going at reserve prices, suggesting that the investor appetite is low and India is pushing away much needed foreign investment.

Related reading:
Video: Telenor in India, beyondbrics
Telenor urges clean-up of India rules, FT
Indian mobile auction plans attacked, FT

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