Muted response to spectrum auction
New Delhi: India’s largest spectrum auction may end as soon as this week because of a high reserve price for the airwaves and muted response from telecom operators.
Experts expect the bidding intensity to reduce in the coming days, an outcome that will underscore the need for rationality in the pricing of spectrum in India.
The five rounds of bidding on Saturday, the first day of the auction, saw operators such as Bharti Airtel Ltd, Vodafone India Ltd, Idea Cellular Ltd and Reliance Jio Infocomm Ltd bid for as much as Rs53,531 crore worth of spectrum. On offer in the auction is 2,354.55 megahertz (MHz) of spectrum worth Rs5.63 trillion at the minimum or reserve price.
In the Union budget, finance minister Arun Jaitley estimated a revenue of Rs.98,995 crore from communication services for the year ending 31 March. The amount includes proceeds from spectrum auction and other fees levied by the telecom department.
There were no bids for spectrum in the 700MHz and 900MHz bands and the auction may end by the middle of next week, Bloomberg reported, citing an unnamed official in New Delhi. The auction will resume on Monday.
To be sure, the cost of delivering mobile services in the 700Mhz band is about 70% cheaper than that in 2,100Mhz but telcos are reluctant to bid for the band as they will have to shell out Rs11,485 crore per Mhz.
According to Prashant Singhal, global telecommunications leader at EY, the first day of the spectrum auction was on expected lines. He believes there will be some intensity on Monday and said that the auction shall come to a closure this week.
Dharmesh Kant, head of retail research at Motilal Oswal Financial Services Ltd said telecom firms were a bit aggressive on the first day of the auction and he expects them to bid rationally on Monday. “I don’t see this auction making headlines,” Kant said. He added that the entry of Mukesh Ambani-promoted Reliance Jio has put pressure on industry. “Banks are also worried in lending as they are burdened with NPAs (non performing assets) and except Reliance Jio, which has sufficient balance sheet strength, all others have stretched balance sheets,” Kant added.
The auction of total 2354.55 Mhz spectrum in seven bands, which started on 1 October witnessed 2300 Mhz being bid for entirely with excess demand in Mumbai and Delhi circles despite high reserve prices.
“Bharti Airtel Ltd and Vodafone India are expected to have bid for 2300 Mhz extensively,” said an industry analyst not willing to be named.
Excess demand was witnessed in most of the circles in 1800 MHz band while in 800 Mhz band, the demand was limited.
In 2100 Mhz, nine circles were most sought after, including Delhi that saw reserve price per block at Rs2,770 crore. There were no takers for Mumbai circle in the 2100 Mhz band.
The bands in 1800 Mhz and 2100 Mhz are used extensively to roll out data services by telecom companies and 2300 Mhz is held by Reliance Jio in all 22 circles. The sub-GHz bands (700-900 Mhz) bands are most efficient and highly sought after world over for providing seamless data services.
As against expectations of many analysts, nine out of 22 circles saw bidding in 2500 Mhz band on Saturday.
It was expected that Reliance Jio may bid for spectrum in 700Mhz given its big focus on data. Bharti Airtel, Vodafone India and Idea Cellular were expected to bid for 1,800Mhz, 2,100Mhz, 2,300Mhz and 2,500Mhz.
Market leader Bharti Airtel will look to augment its coverage and will plug gaps in its 3G and 4G spectrum portfolio across various circles. It holds 1,800Mhz in 22 circles, 2,300Mhz in 17 circles and 2,100Mhz in 21 circles. With $7.2 billion equity infusion from its parent, Vodafone is expected to be most aggressive as it has 4G spectrum in only nine circles.