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Business News/ Market / Mark-to-market/  Idea’s Rs3,310 crore spectrum buy shows worry about Reliance Jio
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Idea’s Rs3,310 crore spectrum buy shows worry about Reliance Jio

If there were any doubts that Idea wasn't too perturbed about Reliance Jio impending launch, its latest move should put them to rest.

Idea Cellular Ltd on Tuesday said it will pay Rs3,310 crore to acquire spectrum in two circles from Videocon Telecommunications Ltd. Photo: Pradeep Gaur/MintPremium
Idea Cellular Ltd on Tuesday said it will pay Rs3,310 crore to acquire spectrum in two circles from Videocon Telecommunications Ltd. Photo: Pradeep Gaur/Mint

Idea Cellular Ltd on Tuesday said it will pay 3,310 crore to acquire spectrum in two circles from Videocon Telecommunications Ltd. In the March 2015 auction, the spectrum was valued at 1,670 crore, or about half of what Idea has agreed to pay.

According to an analyst with a leading institutional brokerage, quite a few investors will see this as a move that reeks of desperation. If there were any doubts that Idea wasn’t too perturbed about Reliance Jio Infocomm’s impending launch, its latest move should put them to rest.

The purchased spectrum in the Gujarat and Uttar Pradesh (West) circles, Idea said, will be used for deployment of 4G LTE services. The analyst added that this will be seen as a move to protect revenues from any disruption at the time of Reliance Jio’s launch of 4G services.

Consequently, if the company perceives Reliance Jio as a serious threat, investor concerns in recent months may not be all that misplaced.

Idea’s shares have fallen by 31% from their highs in mid-April this year, partly because of the uncertainty about Reliance Jio and concerns about increasing capex estimates.

Analysts at Nomura Research said in a note to clients last week, “Not knowing what Reliance Jio will do is perhaps worse than even seeing an aggressive launch—at least Idea or others can act and react."

Investor perceptions aside, Idea seems to have had little option but to bid aggressively for Videocon’s spectrum and secure its position in these two important circles. Together, they account for 14% of its total revenues. In Uttar Pradesh (West), it enjoys market leadership with a 32% revenue share, while in Gujarat, it is a strong number two with a share of over 20%.

With the purchase, Idea said, it will have a 4G footprint in 12 circles, which together account for 75% of its revenues. It will also have the full range of mobility services across 2G, 3G and 4G technologies in eight key circles, which together account for 67% of its revenue.

In terms of spectrum assets, therefore, Idea is in a fairly good position. It may have paid about 1,000 crore more than what some analysts would have liked, which does not move the needle much in terms of its overall spend on spectrum purchases. Only this March, it spent over 30,000 crore on spectrum purchases.

But the larger worry is its positioning in the 4G segment,which reflects some concern about disruption whenever Reliance Jio launches its services. Needless to say, the increasing uncertainty regarding the launch will only make investors more unsettled.

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Published: 25 Nov 2015, 12:43 AM IST
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