Spectrum auctions, which were earlier postponed due to elections, are now scheduled to take place on June 25. This time, it is likely to be a quick, low-key affair, compared to previous auctions, which fetched over Rs 1.5 trillion.
In this round of auction, the Department of Telecommunications is offering 10,523.15 MHz of airwaves across eight bands, at a reserve of price of Rs 963 billion for a period of 20 years, with the option to share spectrum after one year or to sell the spectrum after two years. All three private operators are eligible to participate (since they have deposited earnest money), but they are expected to make minimal offers.
Analysts believe that these auctions will not realise more than the reserve price and the bidding could be so subdued that the total commitment could be roughly 20 per cent of the bandwidth on offer. This gels with management guidance from Reliance Jio and Bharti Airtel that their respective capex is easing down after their massive commitments to 5G roll-outs in the past two fiscal years. While Vodafone Idea (Vi) has not yet started its 5G roll-out and also needs to strengthen its 4G network, Vi has committed just Rs 3 billion as earnest money and is expected to bid minimally.
Bharti Airtel could spend around Rs 104 billion assuming reserve prices – the outer limit on the basis of EMD submission would be about Rs 126 billion. It needs to renew spectrum in several circles and it may choose to top up holdings in others.
Jio has put down enough EMD to bid for up to Rs 360 billion but it is also likely to restrict the spend to a maximum of Rs 120 billion since it has adequate spectrum for both its 4G and 5G operations. Vi needs to renew its spectrum in the Uttar Pradesh West and West Bengal circles and is likely to restrict spend to a maximum of Rs 12 billion.
The low collections are a pointer to something that operators in India have complained about repeatedly – reserve prices are very high and this leads to parsimony on the part of bidders, who bid for the bare minimum spectrum they require. As a result, networks may be clogged and slow, but there is unwillingness to invest more.
Some of the other issues regarding spectrum allocations have been sorted out over the years but India’s spectrum costs as a proportion of the annual telecom revenues are way higher than that of other key global markets such as China, Germany, the UK and Brazil as per a research paper by CLSA. Moreover, given the minimum roll-out obligations, operators lack the freedom to decide their roll-out strategy as they see fit.
Among all the costs that telecom service providers incur, this is one huge head where the government could compress costs more or less by administrative fiat, by simply setting reverse prices lower. That would, in turn, take the pressure off operators to try and hike ARPUs in a market that is almost saturated in terms of teledensity.
