US meltdown may affect 3G bid

The meltdown of Wall Streets blue-blooded banks and the growing fear that the contagion will spread to some European banks could directly impact India's upcoming 3G spectrum auctions by keeping away global bidders.

The absence of global players is expected to seriously restrict the value of the bids placed for 3G spectrum, which jeopardises the government's Rs 40,000 crore revenue target from this spectrum sale.

Typically, it is large global banks like Lehman Brothers and Merrill Lynch that are intimately involved in supporting the financial bids of both existing operators and new entrants.

They also have a strategic role in the M&As that follow such bids. With the weakening of the financial sector and a general nervousness around money supply, it is highly likely that even if global telcos do participate, the bidding will be far more conservative than it would have been under normal circumstances.

"The financial meltdown is at its peak. India's 3G auctions could not have come at a worse time. The weakness in financial markets is bound to impact bidders confidence," a leading global banker told TOI.

Apart from the fundamental weakness in financial markets, these international banks have very close relationships with global telecom service providers where long term debt, bridge loans and IPO's are concerned. With the collapse of these banks, many global telcos have started tightening their belt and frozen future investments, M&A's and even hiring.

"The entire sentiment is negative. Don't expect global telecom service providers to swim against the tide and put out massive bids in a market like India which is already littered with regulatory uncertainties," says a global telecom operator whose company has been in the Indian market for investments for nearly two years.

The weakness of foreign banks and global financial sector is also expected to move the Indian banking sector to a more conservative approach for funding debt which will be critical to the post-bidding rollout scenario.

"Overall, the sentiment of telecom investments during and post the 3G bidding will be intimately linked to the scale of the unfolding financial crisis," says a telecom analyst.

Telecom minister, A Raja's 3G guidelines, announced on August 1, 2008 proved to be a dampener for global telcos who said they would not participate on account of discriminatory financial entry barriers among other issues.

This forced the DoT to revise the spectrum guidelines for both 3G and Broadband Wireless Access spectrum. Companies are currently studying the full impact of such revisions. It seems that the crisis faced by the global banking sector is definitely an unwelcome move that will adversely impact India's exchequer revenues.

Source: Indiatimes Infotech