Spectrum Auction Shift in Business Model

The recent spectrum auction for both 800 MHz and 1800 MHz has received a lukewarm response. In 800 MHz, only two companies-- Tata Teleservices and Videocon Telecommuncations have applied whereas in 1800 MHz, the applicants are Bharti Airtel, Idea Cellular, Vodafone South, Telewings Communications Services, and Videocon Telecommunications. In this entire exercise, among new operators who will lose their license only Telewings Communications, part of Telenor Group and Videocon Telecommunications is participating. This leads to the conclusion that Indian market is lucrative only for large operators who are planning for a long term commitment in the Indian market and is planning to invest large amount of money.

Companies like Reliance Communications and Aircel are not participating as there was no urgency for them to participate in the auction and they have a long time for the renewal of their licenses. In the case of MTS, the company is waiting for the outcome of the curative petition which will help them to decide the future course of action. In case of Videocon, it seems the company is bidding on behalf of Reliance Industries and the whole purpose is to use both the spectrum for broadband and voice. One has to also see how Reliance Industries uses these two spectrum bands to make a robust business model as in 2.3 Ghz, the business model was not in their favour.

In 800 MHz, Tata Teleservices is planning to participate for Assam, North East and Jammu & Kashmir. If Videocon Telecommunications plans to participate in the same circles where Tata Teleservices is bidding than there would be an auction. In the rest of the circles it will be a failed auction as there would be only one company bidding for the 800 MHz auction. So, the government will not get large amounts from CDMA auctions though the government has put a premium on CDMA auction.

The government also had high hopes from this auction process and plans were to collect Rs 40,000 crore but it seems it would be difficult to raise this amount as 800 MHz will not go for an agressive bidding as operators are selective and there are not too many operators. With no new new operators in the fray for 1800 MHz, all operators will try to work on their business models and will not go for an agressive bidding. Even in 1800 MHz, all the operators are not looking for pan India operations and they would be selective in terms of circles where they plan to bid. so, even on GSM front, we do not see any agressive bidding by the operators.

This auction has also put an end to pan India operations as operators are not finding it attractive to bid for all circles. So depending upon the business model, companies will bid for selective circles as the companies will have to put an equal amount in terms of capex funding in the next 5 years for larger circles. The next big question in this auction is the availability of funds and the rate at which these funds are available. With operators under huge debt and depleting cash, it would be difficult to get funds at attractive rates, making their business model look extremely difficult and so the focus would be more on the innovation and collaborative effort which will pave for their success in the new regime.

with the huge premium that operators plan to pay for the spectrum auction, there would be a substantial increase in tariff as it will help them to recover their money. With technology neutrality coming in, the operators will focus on voice and data business model rather than focus only on voice. As only voice will not help them in recovering their money. Some operators are looking to get both 800 MHz and 1800 MHz as they plan to surrender 2.3 GHz which they had bagged for BWA operations.

With business model not working for 2.3 GHz, it becomes imperative that operators should look at lower bands for launching broadband operations in the country. And they plan to swap the licenses and pay the differential is also in the pipeline. One has to see how it will pan out during the auction process.

The bigger question is why the regulators are not serious while choosing future technologies and the case in point is TD-LTE in 2.3 GHz band. If they were serious, what went wrong that none of the operators are not eager to launch their services in 2.3 GHz band. If TD-LTE was an appropriate technology why rollouts have not happened in last three years. By not choosing the right technology, we not only waste lot of time but we are also behind in terms of broadband numbers achievement which is not good for the country.

Pravin Prashant

pravinp@cybermedia.co.in