Indian mobile phone market leaders Vodafone and Bharti Airtel have bought airwaves worth about $3bn each in a hotly contested auction that raised nearly $10bn, far exceeding the government's target.

Bharti, the country's largest telecommunications firm, and second-ranked Vodafone said they had won airwaves in the premium 900 megahertz (MHz) band that was available in three key cities, New Delhi, Mumbai and Kolkata.

Conglomerate Reliance Industries, a new entrant in the industry that is seen as a threat to the incumbents, bought airwaves in another band in 14 locations the government said, estimated to have cost it $1.7bn.

"The government is happy and we will see a smile on the face of the finance minister," telecoms minister Kapil Sibal said after the auction ended on Thursday following 10 days of bidding.

The market leaders' heavy spending underscores the fierce competition in the world's second biggest mobile phone market behind China, the Reuters news agency reported.

Third-ranked mobile operator Idea Cellular said it spent $1.7bn on new airwaves including in the 900 band in the capital.

The stakes were especially high in the auction for Vodafone and Bharti, which currently use the relatively more-efficient 900 MHz band airwaves in key cities.

They would have seen their rights expire in November unless they won them back in the auction and a switch to another band would have been costly.

Competition

Cash-rich Reliance Industries gains entry into the bread-and-butter voice telephony market with its airwave buy, heating up competition in that segment.

But with its purchase of less-efficient 1,800 MHz band spectrum in 14 of the 22 telecom zones, competition will be "a little less" than anticipated, Naveen Kulkarni, a Mumbai-based telecoms analyst at PhillipCapital, said.

The government is happy and we will see a smile on the face of the finance minister.

Kapil Sibal, Indian telecoms minister

After India removed technology restrictions, the 900 and 1,800 spectrum bands sold in the auction can be used to offer 3G and 4G services, respectively.

Currently carriers offer voice services on these bands, but Bharti, Vodafone and Idea said on Thursday they could use these to rollout mobile data services.

Reliance did not say how much it spent in the auction, but PhillipCapital estimated it to be worth about $1.7bn.

Telecoms stocks have fallen this year over spectrum bid worries.

Telenor's Indian unit, Reliance Communications and Aircel also won airwaves in the 1,800 MHz band in some zones. Companies have the right to use the airwaves won in the auction for 20 years.

Open auction

The Indian government will get at least $3bn upfront from the auction as companies need to pay a quarter to a third of the winning price initially and the rest up to 2026, the Reuters news agency reported. 

The government had targeted raising at least $1.8bn through the auction to help shrink its budget deficit.

Finance Minister P Chidambaram faces a challenge to meet the deficit target for the current fiscal year ending in March, partly due to a shortfall in tax collections and revenue receipts from the sale of stakes in state companies.

India had traditionally sold airwaves for basic mobile services through a state-selection process, but switched to an open auction in 2012 after a scandal over mis-selling of permits.

Spectrum auctions in November 2012 and March 2013 flopped as most bidders stayed away, complaining the floor prices for bids were too high.

The government was forced to sharply cut reserve prices for the latest auction. In 2010 India raised $17bn by selling airwaves for 3G and 4G services.

Reliance Industries already owns nationwide 4G airwaves from the 2010 auction but has yet to launch services. The latest 1,800 band spectrum purchase would help it improve 4G coverage.

Source: Agencies