Spectrum Auction Caution

Experts believe that the auctions are likely to be successful if the reserve price is favorable to the telcos.

By Gagandeep Kaur

Come February and the country will be a witness to another spectrum auction. While the Government might be hoping for a repeat of 2010 auctions when it garnered Rs 677 bn, the industry hopes for a conservative reserve price, which would enable it to control its debts.

The Department of Telecommunications (DoT) will be offering 184 MHz in the 900 MHz band in 18 circles and 104 MHz in 17 service areas in 1800 MHz frequency band. Besides spectrum in 800 MHz band, used by the country’s only pure-play CDMA player, MTS India, across 22 circles will be up for sale.

“It is better to auction the three bands together in February, next year. The main reason for this is that it will help in better planning for the telcos strategizing their spectrum roadmap. Besides, telcos also have the financial wherewithal to deal with this. It will definitely be beneficial in the long run,” says Rohan Dhamija, head India & South Asia, Analsys Mason.

What Is At Stake?

The upcoming auction is extremely critical for the incumbent players: Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications. All these players are required to renew their licenses in some circles. Four licenses of Airtel, seven each of Idea Cellular and Reliance and six licenses of Vodafone need to be renewed to enable them to continue providing services.

In some circles, they have acquired 1800 MHz spectrum which will ensure the continuation of the services but overall they would want to retain 900 MHz spectrum because of its efficiency.

It is for this reason that the analysts believe that the response to the auction would be much better than what the Government has been expecting. DoT hopes to garner Rs 14,000 crore from the sale of spectrum in this auction. In the last auction, the Government generated Rs 61,162 crore through the sale of 46 MHz in 900 MHz and 307 MHz in 1800 MHz frequency band.

Not just the incumbents, even smaller players like Uninor are likely to try to get additional spectrum in these auctions. The company does not own 3G spectrum and would be looking to acquire some spectrum to be able to offer data services to its subscribers.

The industry has been demanding the auction of 2100 MHz spectrum for some time. None of the telcos have pan-India 3G spectrum, which is why this spectrum is critical for them. However, there is no clarity on the auction of this spectrum, as of now. This spectrum is being used by the Defense sector and has not vacated this spectrum.

“The non-availability of sufficient spectrum for this auction is a matter of concern for the entire industry. DoT should initiate a dialogue with Defence on the partial allocation and potential vacation of 900 MHz; reshuffling of 1800 MHz; and the swapping of 1900 MHz with 2100 MHz uplink. It is important that sufficient spectrum is made available to conduct the auction to meet the needs of the operators as well as the objectives of the Government,” says Rajan Mathews, director general, Cellulars Operator Association of India (COAI).

Another demand of the industry is that the spectrum should be contiguous, which enhances the efficiency of the spectrum. The fragmentation of spectrum reduces its performance, which is further affected by the high number of telcos in the country.

“It would be absolutely essential that the rearrangement of frequency spots is carried out between the DoT/WPC and the operators to ensure contiguity of spectrum. Without this, roll out of 3G, 4G/LTE networks will be impaired,” explains Mathews.

Indian telcos do not own contiguous spectrum because it has been allocated in small chunks over a period of time.

Reserve Price Imbroglio

In the past, the Government has faced severe criticism with the reserve price of the spectrum. This time around the new Government is unlikely to repeat the mistakes of the past Government.

Telecom Regulatory Authority of India (TRAI) has recently issued consultation paper to decide on the reserve price for the spectrum in the forthcoming auctions. Experts believe that the auctions are likely to be successful if the reserve price is favorable to the telcos.

“The reserve price should be favorable to the telcos. The auctions will fail if that is not the case,” says Dhamija.

Echoing Dhamija’s views, Mathew says “The general feeling is that the auctions will be successful given that rational and market-discovered reserve prices are offered by the government,” he says.

Most of the telcos are in debt and if the bidding is fierce this time around then they might be further pushed into financial mess. Vodafone India has a debt of around Rs 50,000 crore and their board recently cleared additional loan of Rs15,000 crore for participation in the forthcoming auctions. On the other hand, Bharti Airtel also has a debt of Rs 57,743 crore. Reliance Communication carries a burden of Rs 40,000 crore on its books.

Further the banks will be reluctant to give out additional loans to telcos after the cancellation of 122 licenses about three years back. The recent cancellation of coal block allocations might also play a part in their reluctance to increase exposure to telcos.

What possibly helps the telcos is that DoT just cleared spectrum sharing and might possibly agree to spectrum trading which will help them to go for strategic bids. Further the terms of payment for spectrum has been relaxed making it easier for the telcos to acquire spectrum.

All this points to the fact that the auction might not witness mindless bidding like that of 2010, which pushed the industry in to debts.

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