Vodafone, Idea need spectrum most, will drive 29 September auction

Idea Cellular, Vodafone need to fill gaps in their spectrum and thus will have to outbid telecom rivals Airtel and Reliance Jio, say experts and analysts


The government expects telecom companies to bid aggressively in the spectrum auction as they seek to improve the quality of their service. Photo: Pradeep Gaur/Mint
The government expects telecom companies to bid aggressively in the spectrum auction as they seek to improve the quality of their service. Photo: Pradeep Gaur/Mint

New Delhi: Idea Cellular Ltd and Vodafone India Ltd will seek to outbid their rivals—market leader Bharti Airtel Ltd and new entrant Reliance Jio Infocomm Ltd—in the auction of spectrum (radio waves) that starts on 29 September, experts and analysts say.

The two telcos, both based in Mumbai, will need to fill gaps in their spectrum. Thanks to some smart acquisitions, Airtel is sitting pretty with 769.9 megahertz (MHz) of spectrum across the 22 circles into which India’s telecom geography is divided. The Mukesh Ambani-promoted Reliance Jio, which is yet to launch its operations commercially, is also comfortably placed with 595.8MHz of spectrum across India. In contrast, Vodafone has 301.8MHz and Idea 270.7MHz.

Spectrum worth Rs.5.63 trillion at the base price will go under the hammer in India’s largest auction of mobile airwaves, the government said on Monday. Bidding will begin on 29 September, with 2,354.55MHz of spectrum up for grabs.

The government expects telecom companies to bid aggressively in the auction as they seek to improve the quality of their service.

The telcos themselves are likely to be cautious on account of the debt on their books. Airtel and Idea, the two listed telcos, had net debt of Rs.83,491.5 crore and Rs.37,657.9 crore, respectively, on their books as of the quarter ended 30 June.

Goldman Sachs said in a report released 9 August that it does not expect aggressive bidding during the auctions. Airtel and Jio will bid to bolster their data spectrum.

“The upcoming auction is crucial for Idea and Vodafone in our view, as they still have large amount of 3G/4G gaps, and will look to fill those,” the bank said in its report. “We do not foresee meaningful participation from any of the other smaller telcos given their stretched balance sheets,” it added. Idea can’t provide data-rich 4G services in 11 circles.

Spokespersons at Vodafone, Idea, Airtel and Reliance Jio declined to comment.

The government is putting on sale spectrum bands of 700MHz, 800MHz, 900MHz 1,800MHz, 2,100MHz, 2,300MHz and 2,500MHz.

Vinay Jaisingh and Amruta Pabalkar, sector analysts at Mumbai-based brokerage firm Morgan Stanley India Co. Pvt Ltd, said in a report that they do not expect too much interest in the 700MHz band on account of its high price, despite it being the most efficient. The reserve price is four times that of spectrum in the 1,800MHz band, the analysts explained, and a telco that intends to bid for one block, which is 5 MHz, of spectrum pan India, would need to spend Rs.57,400 crore.

Unlike the previous auction, there is no immediate renewal burden on telcos. In that round, telcos scrambled to acquire spectrum in areas where their licences had to be renewed.

Goldman Sachs estimates the highest outflows for Idea ($2.6 billion), followed by Vodafone ($1.5 billion). Airtel and Reliance Jio would need to invest $1.1 billion and $300 million, respectively, it said.

The bidding will be rational, predicted Bank of America-Merrill Lynch in a report released on Monday.

“The higher gearing (net debt/Ebitda of 3-5 times for listed telcos), relatively slower data growth, expected investments in data and pressure on profitability will likely force telcos to be rational in bidding”, the report said.

Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of operating profitability.

That could well mean a muted response to the auctions, said the investment bank, which sees “a possibility of another auction in March of FY17 where the Department of Telecommunications may auction the unsold spectrum (mainly 700/2,500MHz) at a lower price”.

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