Why the mega telecom spectrum auction may turn out to be a damp squib
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Why the mega telecom spectrum auction may turn out to be a damp squib

By Mansi Taneja

  • 29 Jun 2016
Why the mega telecom spectrum auction may turn out to be a damp squib
Why the mega telecom spectrum auction may turn out to be a damp squib | Credit: Shah Junaid/VCCircle

The much-hyped mega telecom spectrum auction slated to take place in September may turn out to be a damp squib.

Analysts and telecom company executives believe there will be hardly any takers for the 700 megahertz (MHz) band primarily because of two reasons—high reserve price and no ecosystem around it.

The 700MHz is a much sought-after band for offering high-speed broadband services and for long-term evolution (LTE) deployment around the world due to its efficiency and higher penetration inside buildings. Due to lower frequency, it provides wider coverage, which reduces the number of towers required to set up a LTE network and significantly cuts down capital expenditure involved in making the network live. However, the price for the band is Rs11,485 crore, which analysts believe is high.

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“Telecom operators would rather focus on filling the gaps in their spectrum portfolio in the bands such as 800MHz, 1,800MHz and 2,300MHz wherein they already have spectrum for offering 3G and 4G services,” said an analyst requesting anonymity.

Around 2,000 MHz of spectrum—in bands such as 700MHz, 800MHz, 900MHz, 1,800MHz, 2,100MHz and 2,300MHz—will be auctioned and the government expects to generate around Rs5.44 trillion as revenue, assuming all spectrum on the block are sold at their reserve prices. This amount is five times the amount raised from the auction in 2015. Last year, the government had earned a revenue of Rs1.1 trillion from spectrum auction.

However, given most of the spectrum with the operators are liberalised—operators can use it for deploying any technology such as 3G or 4G—and also the price of 800MHz and 1,800MHz being fixed at much lower levels compared with 700 MHz, operators will be inclined to go for these bands, according to a senior telecom company executive who also did not want to be named.

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Moreover, telecom operators are also sitting on huge debt. As on 31 March 2016, Bharti Airtel Ltd’s net debt stood at Rs83,888.3 crore and Idea Cellular Ltd’s debt was at Rs38,750 crore.

According to experts, the telecom sector has a huge debt burden of around Rs2.5-3 trillion.

“There will be a bit of disappointment in the revenue numbers as the reality is quite different. The sector is already sick. It will be lacklustre because of various factors—high debt and single-digit growth. There will be selective bidding in some pockets,” said Prashant Singhal, global telecommunication with consultancy firm EY.

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Singhal also pointed out that 4G has just started and it took four-five years for 3G to gain traction.

“That (3G) spectrum is not yet milked completely. Why will anyone go for the priced 700MHz?” he asked.

Reliance Jio which acquired spectrum in 2,300MHz band six years back is yet to commercially launch its services. Other operators such as Airtel, Vodafone and Idea Cellular are yet to recover their investments done for acquiring 3G spectrum as 3G services have not taken off in a big way in India still.

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A 23 June report by HSBC Global Research said, “Around 70% of the planned receipts from auctions are driven by take up in the 700MHz spectrum band. Except for 4G entrants, none of the existing incumbents have the balance sheet to bid for pan-India 700MHz spectrum at current prices.”

While telecom companies including Bharti Airtel and Reliance Jio have been against the auction of spectrum in the 700MHz band, Telenor India and Tata Teleservices Ltd favoured the auction.

Queries emailed to the spokespersons of Bharti Airtel, Vodafone, Idea Cellular and Reliance Jio on 27 June remained unanswered.

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The government has approved reserve price of various bands as suggested by the Telecom Regulatory Authority of India. A pan-India reserve price of Rs2,873 crore has been set for the 1,800MHz whereas 800MHz will be available for Rs5,819 crore.

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