Mumbai: The proposed prices for India’s auction of mobile-phone airwaves this year are so high, the government could collect a sum worth more than the entire Sri Lankan economy.

The suggested rates could fetch ₹ 5.4 trillion ($79 billion) for a sale due by June that will include the coveted 700 megahertz band, Standard and Poor’s estimates. That puts the dozen or so dueling operators in India’s indebted telecommunications sector in a quandary: opt out and risk falling behind, or take part and incur even greater outlays.

“The total amount is both staggering and ridiculous," said Chris Lane, an analyst at Sanford C. Bernstein in Hong Kong, who pointed out that China provides low-cost airwaves to encourage investment. “Operators are already struggling under the weight of the previous two auctions" in India, he said.

Proceeds of ₹ 5.4 trillion would be four times the record amount the nation raised last year, and compare with about $100 billion achieved by Europe in 2000—one of the industry’s largest such auctions. The risk is that Indian carriers will add to about $26 billion of debt to fund spending, as fierce competition curbs tariffs and companies including Bharti Airtel Ltd and new entrant Reliance Jio Infocomm Ltd invest in 4G (fourth-generation) services.

The opportunity for operators including Vodafone Group Plc’s local unit and tycoon Mukesh Ambani’s Jio—whose $15 billion 4G service is due to roll out in the coming months—stems from India’s 1 billion subscribers and growing voice and data demand.

One of the major challenges is getting spectrum. The 700 megahertz frequency penetrates walls easily and can cover bigger areas with less infrastructure. S&P estimates these airwaves could cost ₹ 4 trillion if the government accepts the reserve auction rates India’s telecom regulator proposed last month.

“We can’t afford to buy that spectrum at that price," Gopal Vittal, Bharti Airtel’s managing director for India and South Asia, said in an analyst call on 29 January. The 700 megahertz frequency would be “very, very expensive," he said.

Investors are taking a dim view of the prolonged squeeze on carriers. The S&P BSE Telecom index of 13 companies is down almost 5% in the past five years, compared with a 31% advance in the benchmark S&P BSE Sensex Index.

Bharti and Idea Cellular Ltd, two of the top three listed operators, both reported net income below analysts’ estimates for the December quarter, while Reliance Communications Ltd beat expectations by a slim margin. Reliance Communications is run by billionaire Anil Ambani, Mukesh’s brother.

India’s 2015 auction garnered $18 billion, up from $9.8 billion in 2014. The money helps the government curb one of Asia’s widest budget deficits. If this year’s variant proves to be just too expensive, it could join two auctions before 2014 that flopped because the floor price discouraged bidders.

Skip auction?

One change this year is that operators can share or trade airwaves after the administration eased rules.

Carriers could thus skip some of the upcoming auction and rely on spectrum pacts to bolster coverage, according to Fitch Ratings, which expects the 2016 credit profiles of the top Indian operators to come under pressure as competition intensifies.

Companies are likely to keep a close eye on each other as they weigh up whether to participate, especially in 700 megahertz, said S&P’s Singapore-based corporate ratings director Mehul Sukkawala.

“They’d like to resist, but will be mindful of what the others are doing," Sukkawala said. Bloomberg

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