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Business News/ Industry / Telecom/  Telcos set for crucial spectrum auction from Wednesday

Telcos set for crucial spectrum auction from Wednesday

Bharti Airtel, Vodafone to compete against Reliance Jio, which made the largest guarantee to participate in auction

The airwaves up for auction serve more than 300 million customers and account for almost half of the $19 billion in combined revenue for the four largest operators. Photo: iStock (iStock)Premium
The airwaves up for auction serve more than 300 million customers and account for almost half of the $19 billion in combined revenue for the four largest operators. Photo: iStock

New Delhi: What happens when a wireless operator with millions of customers loses the airwaves it needs to provide service? We may soon find out thanks to an unusual government auction taking place in India.

The government will open the bidding on Wednesday for airwaves already in use by the biggest carriers, including Bharti Airtel Ltd and Vodafone Group Plc. They’ll have to compete to keep their licenses in the auction against Mukesh Ambani, who has signalled his determination by making the largest deposit of the competition.

India’s approach, which is unlike what happens in the US, could mean seismic change for the world’s second-largest smartphone market. The airwaves up for auction serve more than 300 million customers and account for almost half of the $19 billion in combined revenue for the four largest operators.

“For some of the telcos, renewal of spectrum is a key for survival," said Nitin Soni, a director at Fitch Ratings in Singapore.

Bharti, India’s biggest carrier, and second-ranked Vodafone could each spend as much as $4.5 billion for the spectrum, Soni said.

Ambani’s Reliance Jio Infocomm Ltd submitted a 4,500 crore bank guarantee, the most of any carrier, to participate in the auction, according to data from Mjunction Services Ltd, which is running the sale. Bharti Airtel was second with 4,300 crore, and Vodafone gave a guarantee of 3,700 crore.

Voice focus

India adopts a staggered approach to spectrum, selling 22 regional “circles" of coverage with different expiry dates. Last year, the government raised 612 billion rupees from airwaves in cities including Mumbai and New Delhi.

The government said 6 January it expects to raise 64,840 crore from this year’s sale. A Supreme Court judge considering challenges to the procedures will rule on the final result, with the next hearing scheduled for 26 March.

This year’s auction includes 20 circles covering 1.1 billion people, with the bidding starting Wednesday and lasting as long as two weeks.

Almost 40% of the spectrum for sale is in the 900 megahertz band, one of the most coveted by operators for voice calls because signals travel farther and require fewer towers to be built.

World’s biggest

It’s also the band currently held by the nation’s four largest operators, a group that also includes Idea Cellular Ltd and Reliance Communications Ltd, the carrier controlled by Mukesh Ambani’s brother, Anil.

Reliance Jio, a unit of Mukesh Ambani’s oil refining and retail empire, secured 1,800 Mhz spectrum in last year’s auction to add to the 2,300 Mhz airwaves it acquired in 2010. Both are suited to high-speed data.

The billionaire, who said in June he is building “the largest broadband network that the world has ever seen," is now probably eyeing the 900 Mhz band to add voice services, said Aliasgar Shakir, an analyst at Elara Securities (India) Pvt. in Mumbai.

“They’ll be looking to acquire 900 Mhz because it’s the most compatible for both voice and data," Shakir said. “If they only wanted to do pure data, they could have done it already."

Canceled permits

For Bharti Airtel, the six coverage areas up for auction bring $803 million in quarterly revenue, or 35% of the company’s total cellular phone service revenue, according to government filings. Vodafone has seven circles at risk, accounting for 44% of revenue, while Idea Cellular has 73% of its cellular phone service revenue coming from circles up for auction, according to the filings.

“Idea has the most at stake in this auction, that’s for sure," Soni said.

Spokesmen for Vodafone, Idea, and Reliance Jio confirmed that the companies are bidding in the auction, yet declined to comment on their expectations. Spokesmen for Bharti Airtel and Reliance Communications didn’t respond to phone calls or e-mails seeking comment.

India’s spectrum sales have been affected by scandal in the past, and the country changed the rules in 2012 to redistribute airwaves every time they expire.

The Supreme Court cancelled 122 permits sold in 2008 after ruling they were granted illegally. The nation’s auditor said the permits were sold at “unbelievably low prices" and may have cost the government as much as $31 billion in missed revenue.

Digital India

Guidelines for this year’s auction have set goals including stimulating competition, avoiding hoarding and promoting the rollout of services.

While Prime Minister Narendra Modi plans to use the money to help narrow the nation’s budget deficit, it comes as his government tries to implement its Digital India policy, an $18 billion program to expand high-speed Internet access and offer government services online.

The auction could raise $14.5 billion, Standard and Poor’s domestic unit Crisil Ltd estimated in a February note to investors. That’s about 45% more than the government has projected.

While that would help the government, it’s also likely to drive up prices for consumers as carriers try to repay debt they add to pay for spectrum. The average monthly phone bill in India is about $2.

Shutting business

Data and calling rates may rise by about .05 per minute, according to Crisil. That would suggest a 13% increase on Bharti Airtel’s average voice rate.

Crisil expects wireless operators to add about 70,000 crore in debt, or about a one-third increase from current levels.

If Reliance Jio enters the voice business, raising rates will be difficult for the incumbents, said Sudip Sural, senior director of Crisil in Mumbai.

Any company losing previously held airwaves will probably have to shut down business in that region and abandon any investments or infrastructure it’s made. Companies also will lose revenue if they can’t switch to other bands, a move that would probably require new towers or technology.

If companies shut down their business in a particular circle, their subscribers will have to look for new cellular operators, said Rishi Tejpal, an analyst at Gartner Inc. in New Delhi.

“For some operators, it’s a do-or-die situation," Tejpal said. “And with Reliance Jio in the picture, nobody knows their strategy." Bloomberg

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Published: 03 Mar 2015, 09:58 AM IST
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