NEW DELHI: India’s telecom spectrum auction raised Rs 61,162 crore after 10 days of fierce bidding, falling just short of the amount bid for 3G airwaves in 2010 as top operators Bharti Airtel and Vodafone India protected their turf against aggressive newcomer Reliance Jio Infocomm, which won enough frequencies to start offering voice services.
Mukesh Ambani-owned Reliance Jio won a minimum of 5 Mhz of 1800 Mhz bandwidth in 14 circles, including the important ones of Delhi, Mumbai, Kolkata and Karnataka, which will allow it to enter the voice segment to support its 4G data offerings — a development that operators and analysts fear may lead to another rate war.
The country’s two biggest operators complained that they were forced to escalate bids to exorbitant levels to retain airwaves in the 900 Mhz band and are concerned that rising debt levels could crimp investment in network expansion. Analysts said the challenge faced by the industry will intensify as companies won’t be able to raise call tariffs to the extent needed to recoup what they pay for airwaves.
“The auction in 900 Mhz band resulted in artificial and unrealistic prices on account of shortage of spectrum and the unenviable position of the incumbents, who were forced to bid for this spectrum,” Bharti Airtel said in a statement.
Bharti Airtel, India’s biggest phone company, said the incumbent telecom companies were forced to put in high bids to protect the “interest of their customers and the huge investments made by them”.
The debt burden will hurt the industry and subscribers, said Marten Pieters, managing director and CEO of Vodafone India, the No. 2 operator in the country.
“The auction has raised over Rs 61,000 crore for the government, but much of this will end up as debt on the balance sheets of the mobile operators. Such high industry indebtedness will hurt operators’ ability to invest in the rollout of new technologies and invariably result in higher prices and reduced service levels for consumers,” he said.
The auctions have thrown up four clear winners — Bharti, Vodafone, Idea and Reliance Jio, albeit at a cost.
They will be the ones that are best placed to offer both voice and data across the country, possibly leaving some of the other operators looking at exits. While all 46 blocks of spectrum on offer in the efficient but more expensive 900 Mhz band were sold, nettingRs 23,589.6 crore for the government, about 80% of 385 blocks on sale in the cheaper 1800 Mhz bandwidth were taken up for Rs 32,572.6 crore, Telecom Secretary MF Farooqui told reporters.
The bandwidth sale started on February 3 and wound up on Thursday. The winning price in Delhi was Rs 740.96 crore for a Mhz of bandwidth, more than double the reserve price.
For Mumbai, it was Rs 563.09 crore, nearly 72% higher than the starting level. In Kolkata, a Mhz of bandwidth went for Rs 194.63 crore, about 56% more than the base price. The winning price in Delhi and Kolkata crossed the 3G price while it fell just short in Mumbai. The pan-India winning level in the 1800 Mhz band was about 7% higher than the floor price.
Bharti and Vodafone, which arguably had the most at stake in these auctions, won back their 900 Mhz holdings that were up for grabs as their permits expire in November. Bharti, which didn’t have 900 Mhz in Mumbai, managed to win 5 Mhz in the lucrative circle. Idea also won 5 Mhz of those airwaves in Delhi. High-paying data customers make Mumbai and Delhi especially attractive for the operators.
The importance of the auction stems from its relevance to data rather than voice, said Himanshu Kapania, Idea’s managing director “We have to first break the myth about this being a 2G auction. This is a data auction, which has come out of the participation we have seen,” he said. “That said, although we welcome Department of Telecom’s decision to auction spectrum, the prices have been higher partly because of the auction design.
There are two reasons: first, not all spectrum was contiguous; second, we don’t know when the next round of spectrum will be available.” The additional 900 Mhz spectrum that Bharti and Idea got in Mumbai and Delhi, respectively, will allow them to offer premium, high-speed data services in these markets. Reliance Jio will be able to offer voice through the 1800 Mhz spectrum it’s got in 14 circles to support its planned 4G data services.
Vodafone bid the most amount of money — Rs 19,600 crore, of which aboutRs 5,600 crore will be paid in the year to March 31. Bharti is to pay Rs 18,530 crore, of which it will cough up Rs 5,425 crore this fiscal.
Aditya Birla Group company Idea will pay around Rs 10,400 crore, with an initial payment of Rs 3,100 crore. Reliance Jio bid a total of about Rs 11,000 crore, which translates into an upfront payment of Rs 3,622 crore.
The third round of auctions has seen the most hectic buying, compared with the earlier two rounds held in November 2012 and March 2013, when bidding was on for only two days.
Those rounds failed with the government getting just Rs 9,407 crore, compared with the telecom department’s estimates of more than Rs 40,000 crore.
“The success is due to efficient and reasonable pricing. The government is happy, and we will see a smile on the face of the finance minister,” Communications Minister Kapil Sibal told reporters. He said operators could be stretched financially in the short term, but not in the long term.
“The potential is huge. You have to see it in the context of the potential of the spectrum, given the 3G revolution, data revolution that is going to come about,” he said. “This will be the highway for providing public service, for entertainment, for data with respect to education. In 20 years, I think the sector will again be the golden goose which lays the golden egg.”
Hemant Joshi, partner in Deloitte Haskins and Sells, said, “The overall outcome of the higher input costs should have been an increase in tariffs. However, due to intense competition, the total increase in costs is unlikely to get passed on to the consumer.”
The government will get at least Rs 18,296 crore this fiscal itself if all the winners opt for staggered payments, more if some prefer one-shot payments. Bharti Airtel India CEO Gopal Vittal said the auction has led to much-needed, long-term clarity on spectrum and regulatory issues.
“However, future auctions should ensure that more spectrum in the 900 Mhz band is secured from other agencies and the operators who are grossly underutilising this important spectrum band,” he said. “The auction also highlights the urgent need for vacating E-GSM spectrum in the 800 Mhz band, which is being used for older technologies or is lying unused with certain agencies.”
Vodafone’s Pieters added that the industry is still “spectrum-starved” compared with other countries and the appetite for airwaves in India remains high. “To meet the ambitious broadband objectives, more spectrum should be made available in all bands on reasonable terms.”
The 10-day sale got off to a brisk start with prices in the 900 Mhz rising steeply in the first week, before the action shifted to the 1800 Mhz band.
Operators, keeping in mind the runaway surge in prices during the 3G auction in 2010, tried to keep 900 Mhz bids from getting out of hand. They did this by switching into lower-demand circles such as Assam before returning to bidding for the 900 Mhz band. This saw the Assam circle, for instance, go for about six times the base price.
Some operators kept a low profile — Tata Teleservices did not win any frequencies while Reliance Communications got just 0.6 Mhz in Mumbai. Aircel and Uninor were more aggressive, topping up spectrum in some of the 1800 Mhz circles. Analysts said much of the top-up was to be prepared to offer future technologies such as 4G, which can only be deployed on a minimum 5 Mhz of spectrum. This also helps grow the valuations of companies such as Aircel, which have been touted as acquisition targets.
(Source: The Economic Times, February 14, 2014)