Spectrum Auction on March 1

Spectrum Auction to Start from March 1 – Details Inside

The Central Telecom Regulatory Body, TRAI has announced that a Spectrum auction will commence from March 1. Notably this would be without any 5G spectrum. This sale is a replenishment transaction which helps telecom operators to regulate the bandwidth allotted to them.

Details of the Spectrum Auction

According to the DoT notice, the spectrum auction will be held across all portals at once. Also, the government is expecting to raise around Rs. 4 trillion from the sale of seven bands. The seven spectrum bands going on sale are:

  • 700 MHz
  • 800 MHz
  • 900 MHz
  • 1.8 GHz
  • 2.1 GHz
  • 2.3 GHz
  • 2.5 GHz

The sale will be valid for 20 years. Also, the spectrum will feature bands which are up for renewal in 2021. The government has slashed the prices by 43% and 18.5% for 700 MHz and 800 MHz bands respectively. On the flipside, the prices of 1.8 and 2.3 GHz have been raised by 14.5% and 17.5%, respectively, as reported by ICICI Securities. The report also noted that during the auction itself the prices will be closer to the reserved prices only. Finally, the spectrum pricing has changed according to the2016 spectrum sale figures.

How Much can Telecos Buy at the Spectrum Auction?

The total earnest money deposits stand at INR 13,475 Crores. Reliance Jio has submitted the most, that is, Rs. 10,000 Crores, followed by Bharti Airtel with 3,000 Crores and Vodafone Idea with just Rs. 475 Crores. Usually on these spectrum auctions, the telecom operators are capable of buying spectrum bands of value around 5-7 times that of their earnest deposit. Therefore, Reliance have a purchasing power of Rs. 50,000-70,000 Crores, Airtel with Rs. 18,000-21,000 Crores and Vodafone Idea with Rs. 2,375-3,325 Crores.

The Department of Technology has outlined the method of payment for the winning bids. The operators will be able to defer the payment as they will have to only pay 50% of the whole upfront. The rest can be paid in 16 EAIs at a rate of 7.3% p.a., down from 9.3% at the last auction. Further, the telcos will also get a moratorium of two years from the government.

What to Expect from the Telecos at Spectrum Auction

Goldman Sachs has tipped the bidding to be a bit “muted” as companies are expected to be avoiding spending too much. Saving capital for the upcoming 5G spectrum is a priority for most telecos. However, the switch from 4G to 5G will take years and there is replenishment within the 4G spectrums to be done. The analysts at the firm expect minimal bidding in the 700 MHz band due to its high reserve of Rs. 6,581 Crores/MHz. This comes after the government has slashed the prices by almost half that of 2016. The primary reason for this the unwillingness of the companies to expand into a new spectrum band which would require investment in equipment. With 5G around the corner and other sub-GHz bands available for cheaper, buying 700 MHz band is not lucrative enough for anyone to consider.

Goldman Sachs also reported that telecom operators will buy strategically to improve their overall footprints across the 4G frequencies. Since Reliance Jio submitted the most earnest money, it will be able to renew all of its spectrum. Bharti Airtel will go for 800 MHz band and buy spectrum there to improve their footprint and it has been made clear before that their focus lies on 5G. Vodafone Idea is expected to have a quiet spectrum auction because of its sufficiency in the spectrum and their well-known struggles.

Who Will Renew What in this Spectrum Auction?

According to CLSA,

  1. Reliance Jio has 81.5MHz of spectrum awaiting renewal in the 800 MHz band across 18 circles.
  2. Vodafone Idea has a total of 51.2MHz spectrum due for renewal in the 1.8 GHz band across eight circles, and 6.2MHz spectrum in the 900MHz band in the Tamil Nadu circle.
  3. Bharti Airtel has 51.4MHz spectrum due for renewal in the 1.8 GHz band across eight circles, and 6.2 MHz spectrum in the 900MHz band in the Tamil Nadu circle.

These requirements are huge and so are the prices associated with them. For Reliance Jio, as the research firm calculates, the estimated cost of renewal will be Rs. 20,519 Crores. Bharti Airtel will need around Rs. 13,848 Crores and Voda-Idea will require over Rs. 10,000 Crores. Bharti Airtel has been helped along due to mergers and acquisitions so it looks pretty set for the time being in the spectrum department.

This Spectrum Auction vs the 5G Spectrum Auction

The spectrum auction for 5G is right around the corner and telecom operators are gearing up for the same. This auction, as has been said before, is going to be a silent affair with most of the players gunning for 5G. Things will be cleared up on Monday but it will be interesting to see what actually transpires on the day.

Leave a Reply

Your email address will not be published. Required fields are marked *