Singapore: India’s telecom industry is set for a transformation in 2014 that will see it leap from a chronic spectrum crunch to an abundance of the airwaves, offering mobile phone companies opportunities to emulate global business models and offer data services across radio frequency bands.

With mobile penetration in all of urban India well over 100%, the airwaves on offer across all bands can be used solely to drive up data consumption.

Two policy changes that come into effect in 2014 will also enable operators to increase their holdings of airwaves. The airwaves cap in the new M&A policy is 74% higher than the existing limit. While the new spectrum sharing rules, which will be made public soon, restrict sharing of frequencies to the circle level, and also mandates that both operators have airwaves in the frequency bands that are being shared, the policy shift will further help reduce individual bandwidth requirements of mobile phone companies.

The first chance for the industry to grab airwaves will arise during the upcoming sale, now slated to begin on 3 February. Here, the total airwaves on offer is 8% and 120% more in the 900 and 1,800 bands, respectively, compared with the unsold amount in past auctions, even as the base price for these frequencies are 52% and 26% lower, respectively, compared with March 2013 prices. Technological changes have seen both these bands, which traditionally catered to vanilla voice or 2G services, increasingly being used for high-end data services—3G and 4G—across the globe.

At the same time, the government is most likely to get the armed forces to vacate additional 3G airwaves in the 2,100MHz band during the next couple of months, and put at least three slots of these frequencies for sale in the next fiscal. This will provide an opportunity for telcos to expand their 3G footprint.

Most of the interest in the auctions in 2014 will be centred around the 900MHz and 2,100MHz bands—the “data spectrum". Take the case of the 900MHz band—the auction rules state that a new entrant must bid for a minimum of 5MHz or units of these airwaves. But, for a new entrant who does not have existing infrastructure in the 900MHz, it makes a weak business case to bid for these airwaves in the metro cities—this further helps reduce the competition and help entrenched incumbents secure their mobile permits (and airwaves) when they come up for renewal. It will also ensure that the unprecedented bids during the 3G airwaves auction will not be repeated.

Yet, these are not the only airwaves that will be on offer over the next 12-24 months.

“Over and above the upcoming auctions, we note that more ‘commercially unused’ spectrum currently with the government in 700MHz/1,800MHz/2,100MHz/2,300MHz could hit the market in the next three-five years. Our analysis shows that over this time period, the total spectrum with private telcos could nearly double. Rising spectrum supply with falling spectrum prices could benefit telcos with sound balance sheets and strong cashflow growth," Credit Suisse analysts Sunil Tirumalai and Chunky Shah said in a note to their clients in December.

China too has had a role to play.

Indian mobile phone companies have so far struggled to roll out high-speed 4G mobile networks because there are few handsets that support data and voice services on the 2,300MHz band, which is known as TD-LTE 4G (time division–long term evolution) standard. In contrast, most companies in Europe and the US have adopted a rival 4G technology standard, resulting in leading network equipment vendors and handset makers such as Samsung Electronics Co. Ltd and Apple Inc. developing a slew of phones and related equipment on the LTE-FDD (frequency division–long term evolution) standard.

Executives with Indian telcos admit that winners of 4G spectrum in India had explored the possibility of a limited network rollout in the TD-LTE standard, and instead were prepared to wait for airwaves auction in the 700MHz that are scheduled for 2015.

The 700MHz band will enable telcos to offer 4G services in the LTE-FDD standard in line with their counterparts in Europe and the US. But the decision of China Mobile Ltd, which has more than 760 million mobile subscribers, to go in for the TD-LTE standard for its 4G network has emerged as a game changer.

While providing the requisite volumes for lowering costs, it has also forced equipment makers and handset vendors to begin making products in this band, thereby providing a much needed boost to Indian telcos’ 4G plans.

Additional airwaves are also being freed up as state-owned telcos Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd have surrendered large chunks of the 4G airwaves they were awarded in the 2,300MHz band.

These two state-run companies, which currently hold 25% of the industry’s spectrum, are unlikely to participate in any future airwaves sales, as they are confronted with losses, and require billions of dollars of government bailouts to sustain their operations.

“The government telcos currently sit on 25% of industry’s spectrum and generate less than 7% of industry revenues. They are under balance sheet stress, having been victims of ill-conceived policies of ‘reserving’ 3G/4G spectrum for them in the past. It is thus safe to assume that they will not be participating in future spectrum auctions (or will not be forced to). Thus, the entire increase in spectrum supply could accrue to the private operators. Thus, the private telcos could see a 93% increase in their spectrum allocation," the Credit Suisse analysts wrote.

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