The spectrum auctions that took place on June 25, 2024 were a quick, low-key affair compared to the previous auction, which fetched over Rs 1.5 trillion. The Department of Telecommunications offered 10,523.15 MHz of airwaves across eight bands at a reserve 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 on/after two years. All three private operators deposited earnest money but they made minimal offers at the reserve price.
No bidding took place in the 800 MHz, 2300 MHz, 3300 MHz and 26 GHz bands. A quantum of 141.4 MHz (26.5 per cent of the offered quantum) was sold from the 533.6 MHz spectrum on offer. All three private telecom service providers – Bharti Airtel, Reliance Jio Infocomm and Vodafone Idea Limited (Vi)–did bid to take spectrum for a consideration of Rs 113 billion. The interest was centred on the 900 MHz and 1800 MHz bands. The 900 MHz band saw the highest activity, with bids totalling Rs 70 billion, followed by the 1800 MHz band at Rs 36 billion and the 2100 MHz band at Rs 5.5 billion.
This was marginally better than expectations that around 20 per cent of the bandwidth on offer would be sold. It gels with the management guidance from Reliance Jio and from Bharti Airtel that the respective 5G capex is easing down after massive commitments made to 5G roll-outs in the past two fiscal years. Vi has not yet started its 5G roll-out and needs to strengthen its 4G network. Analysts say Bharti Airtel is bidding for renewal and additional spectrum in select circles, while Vi is focused on spectrum renewal and Jio’s participation is limited.
However, Reliance Jio had the highest earnest money deposit (EMD) of Rs 30 billion, enabling it to bid for the maximum spectrum, while Airtel submitted an EMD of Rs 10.5 billion and Vi had an EMD of only Rs 3 billion. This gave Jio the right to bid for 37.36 per cent of the total spectrum value, Airtel 13.07 per cent and Vi 3.73 per cent.
The muted response was, therefore, disappointing but not surprising. The world over, 5G has not yet started generating significant incremental revenues. Telecom service providers are still waiting for a pick-up on 5G-based enterprise applications, which they were banking on. Until that inflection point occurs, they will not see the need to increase the 5G capex.
Airtel needs to renew spectrum in several circles and chose to top up holdings in others. Jio 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 did not spend more than the minimum that was necessary.
These low collections are a pointer to something operators have complained about repeatedly – reserve prices are high by global standards and this leads to parsimony on the part of bidders who bid for the bare minimum spectrum that they require. As a result, networks may be clogged and slow but given their low ARPUs, operators lack sufficient resources to bid for more spectrum.
Other issues regarding spectrum allocations have been sorted out over the years but India’s spectrum costs as a proportion of annual telecom revenues remain markedly higher than those in other key global markets such as China, Germany, the UK and Brazil, according to 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 where the government could compress costs by administrative fiat, by simply setting reserve prices lower. That would, in turn, take the pressure off operators to hike tariffs and generate more ARPUs in a price-sensitive market, where urban teledensity has hit saturation.
Given the positive externalities of high quality telecommunications services and the flow of downstream activities driven by teleconnectivity and the negative impact of high spectrum prices, the government should consider revising spectrum pricing. What it forgoes in the way of spectrum revenues would be more than compensated by tax revenues generated by a larger volume of downstream activities.
Devangshu Datta
