It's a windfall for new telecom operators

TELECOM TALE

In what is a major windfall for six new telecom operators who were given the Unified Access Service License (UASL) in January this year to run pan-India mobile networks, merchant bankers estimate that they would collectively have a valuation of $15 billion (Rs 67,500 crore).

These companies have paid only around Rs 8,000 crore as licence fee to get 6.2 MHz of spectrum even though they do not have a single subscriber. In simple terms, they will make eight times the money they have invested in just eight months if they were to sell off their companies today.

The reason, experts say, is simple: the government, instead of auctioning a scarce resource and undervaluing its price, gave it to new players really cheap.

Mahesh Uppal, a telecom analyst, said: “This is entirely a policy problem where the government has underpriced a manifestly valuable product which is spectrum. This is an expression of lack of transparent rule-making”.

Even the Telecom Regulatory Authority of India (Trai) had made it clear in its various reports that the price of a pan-India licence, which is at Rs 1,651 crore, should be pushed up as it was fixed in 2004.

Merchant bankers base their valuation on the basis of the deal that was struck on Tuesday by Etilasat, which bought 45 per cent equity stake in Swan Telecom (which has a licence to operate in 14 circles) for $900 million. This means the company which has not made any major investment in even rolling out the network, is valued at $2.3 billion. Similarly, sources say, Unitech Wireless (licence for 22 circles), which is selling its 49 per cent equity stake to Telecom Italia, has been valued at over $3 billion.

Datacom (owned by Dhoots of Videocon and Mahendra Nahata), Swan Telecom, Loop Telecom (a company controlled by BPL Telecom), Stel, Shyam Telelink and Unitech were given letters of intent in January this year to operate pan-India services.

Investment bankers agree that the high valuation represents the real market value of spectrum.

“The current valuation clearly reflects the inefficiency in the allocation of spectrum to the new players. If these new telecom companies, which got pan-India licences for merely Rs 1,600 crore or $400 million, are now being valued at a staggering $3 billion , it raises concern over the system of distributing spectrum,” said a leading investment banker, who is advising a foreign telecom major to buy equity stake in the telecom sector.

“One could understand a margin of 25 per cent or even 50 per cent while trading the spectrum, but not at 400 per cent,” he added.