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Analysts said Bharti Airtel Ltd has amassed large chunks of spectrum through mergers and acquisitions, which should lower its renewal requirement, while Vodafone Idea Ltd (Vi) may not bid aggressively due to large spectrum holding, relatively under-utilized network and stressed financials. (Mint)
Analysts said Bharti Airtel Ltd has amassed large chunks of spectrum through mergers and acquisitions, which should lower its renewal requirement, while Vodafone Idea Ltd (Vi) may not bid aggressively due to large spectrum holding, relatively under-utilized network and stressed financials. (Mint)

High supply, low demand may spoil next spectrum auction

  • Analysts say two of the three largest telecom operators will mostly look at renewal of radio airwaves due for expiry this year, adding that this may reduce competition and may not fetch the government anything more than the base price.

The next spectrum auction scheduled to start from 1 March could see limited participation from two of the three largest telecom operators as they will mostly look at renewal of radio airwaves due for expiry this year, analysts said, adding that this may reduce competition and may not fetch the government anything more than the base price.

They said Bharti Airtel Ltd has amassed large chunks of spectrum through mergers and acquisitions, which should lower its renewal requirement, while Vodafone Idea Ltd (Vi) may not bid aggressively due to large spectrum holding, relatively under-utilized network and stressed financials. Airtel has 57MHz spectrum in the 1,800MHz band and 6.2MHz in the 900MHz band due for renewal in 2021. Vi’s 46MHz spectrum in the 1,800MHz band and 6.2MHz in the 900MHz band will expire.

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The department of telecommunications (DoT) on Wednesday issued a notice inviting applications from eligible bidders for sale of 2,251MHz of spectrum at a reserve price of 3.92 trillion. Spectrum in the 700MHz, 800MHz, 900MHz, 1,800MHz, 2,100MHz, 2,300MHz and 2,500MHz bands have been put up for sale in March.

“We expect the final auction prices across spectrums to be equal to the reserve prices due to significant supply, and likely limited demand for the expiring ones… The next spectrum auction will begin on 1 March. However, the crucial date to watch for is 5 February, the final date for interested operators to submit their applications," brokerage firm ICICI Securities said.

According to analysts’ estimates, the upcoming auction will likely fetch the government 55,000–60,000 crore, at base price, repeating the October 2016 sale when, of the targeted 5.63 trillion, only 65,789 crore was raised, with no takers for spectrum in the 700MHz and 900MHz bands.

In fact, analysts believe spectrum in the 700MHz band could remain unsold this time as well due to its cost, which is the highest among the seven bands put under the hammer.

“Reserve price for 700MHz spectrum is 38% higher than 800MHz spectrum with prices in three metro circles being 56% higher compared to 800MHz spectrum. We, thus, expect telcos to again give a miss to spectrum in the 700MHz band," Credit Suisse said in a report.

Of the total bid amount, spectrum renewal will cost Airtel 15,000 crore, while Relaince Jio Infocomm Ltd may have to shell out 24,000 crore. Vi’s renewal will cost a little over 10,000 crore, which it may not pay and let most of its spectrum expire, analysts said.

The upcoming auction is crucial for Mukesh Ambani-led Reliance Jio, India’s largest operator by market share, as a large chunk of its airwaves in the 800MHz band, which it uses for providing 4G services, will expire soon. Reliance Jio provides only 4G services.

Jio has been using bankrupt Reliance Communications Ltd’s spectrum in the 800MHz band under a trading and sharing agreement to expand coverage in 21 telecom circles. Of this, the licence for 18 circles will expire in July-August.

“This is the first auction since 2016. Data usage has exploded over the last few years and we believe operators will look to renew some of their expiring spectrum and address capacity issues in certain circles by adding to their spectrum holdings. In our view, Jio is likely to be the largest bidder because of these reasons," brokerage BNP Paribas said in a report.

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