Auctions should come to a logical end over the next 2-3 days, but demand movement and activity over the past two days clearly indicates that some operators have pulled out (technically taken eligibility points hit) either completely or partially from the auctions. However, we believe there are still enough players (remember it takes only 1 extra interested bidder versus number of slots available, in any one circle, to keep the auctions going) bidding to take the auctions even higher.

3G Spectrum Price Rigging – Also, players whose balance sheets (funding lines) or competitive positioning does not allow them to make a bid for 3G spectrum in metros and A circles, may still keep bidding for the smaller circles to keep the auctions going. This makes complete sense from a competitive angle – the cost of bidding for the smaller especially C – circles is not high, but every additional round increases the bid price for the metros and A circle as well, increasing the eventual cost for the winners of spectrum in the larger circles. We do not rule out a situation of a well-funded player with pan India 3G aspirations giving up on some of the C circles to bring the auctions to a close.

We believe the bids have already reached ir-rational levels where the 3G payouts and would stretch the balance sheets of the winners and also have a multi-year impact on their earnings as they take the additional D&A and interest burden without commensurate revenues/EBITDA in the initial years.