India's BWA Auction Ends in $8.2B Drama

India's Broadband Wireless Access (BWA) spectrum auction has ended in dramatic fashion after 16 days of bidding, raising 385.4 billion Indian rupees (US$8.22 billion) for the government, far exceeding its expectations.

The total includes the proceeds from the auction -- INR256.9 billion ($5.48 billion) -- plus the fees now due from state-owned operators Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL) , which were previously awarded their spectrum.

The 3G spectrum auction, which ended last month, raised INR677.2 billion ($14.45 billion), putting the Indian government's spectrum license haul during the past four weeks at INR1,062.6 billion ($22.67 billion). (See India's 3G Auction Ends, Raises $14.6B.)

PHEW!

The BWA auction -- in which two slots of 20MHz capacity in the 2.3GHz band were up for grabs in each of India's 22 circles (service areas) -- was hotly contested. (See A Guide to India's Telecom Market for more on India's circles.)

Apart from the country's treasury, the main winner was startup Internet Service Provider (ISP) Infotel Broadband Services. It won a pan-India license -- BWA spectrum in all 22 circles -- a move that will cost the company INR128.4 billion ($2.74 billion).

How can a small ISP afford that? The answer came only hours after the auction ended, when it was dramatically revealed that Infotel is being acquired for about $1 billion by Reliance Industries Ltd. (RIL), an Indian industrial conglomerate (oil, petrochemicals, textiles, retail) with an annual turnover of $44 billion.

To add to the drama, RIL is run by Mukesh Ambani, brother of Anil Ambani, who heads up Reliance Communications Ltd. , which was involved in the auction but failed to win any spectrum. (See Oh Brother!.)

Shortly after the BWA auction ended on Friday, RIL announced to the Bombay Stock Exchange that following an imminent issue of new equity worth INR48 billion ($1.03 billion), it will own 95 percent of Infotel, which will become a RIL subsidiary. (See RIL Takes Over Infotel.)

It also noted that it intends to "take a leadership position" in the Indian broadband market, and plans to use Long Term Evolution (LTE), not WiMax, to achieve its goals.

The other bidders that won BWA spectrum are Aircel Ltd. (spectrum in 8 circles), Tikona Digital Networks Pvt. Ltd. (5 circles), Bharti Airtel Ltd. (Mumbai: BHARTIARTL) (4 circles), Qualcomm Inc. (Nasdaq: QCOM) (4 circles), and Augere (Mauritius) (1 circle). (See Qualcomm Unveils LTE Plans for India)

In addition to the two slots that were auctioned, BSNL, which operates in 20 circles, and MTNL, which operates in the two key metro circles of Mumbai and New Delhi, have already been handed a 2.6GHz slot in each of their service areas. (See Billions Bid for India's Broadband Spectrum to find out about MTNL's reluctance to throw its weight behind an aggressive BWA strategy.)

A number of big names came away from the BWA auction empty-handed. In addition to Reliance Communications' WiMax division, mobile operators Idea Cellular Ltd. and Vodafone India lost out, as did ISP Spice Internet, and, surprisingly, Tata Communications Ltd. , a vocal WiMax supporter.

Predictably, Mumbai and New Delhi recorded the highest bids. A BWA license in Mumbai cost INR22.93 billion ($490 million), while New Delhi cost INR22.41 billion ($479 million). Infotel and Qualcomm join MTNL as the 2.3GHz spectrum holders in those major cities.

— Gagandeep Kaur, India Editor, and Ray Le Maistre, International Managing Editor, Light Reading