Spectrum price discounts anger new operators

Major buyers of spectrum in pre-sale season are Uninor, Sistema Shyam and Videocon

For the new operators who won spectrum in the November 2012 auction, the current lower reserve prices of spectrum recommended by Trai have come too little too late.

The few bidders of the last spectrum auctions are angry, as they were compelled to pay more due to high reserve prices, as their licences were cancelled by a Supreme Court order.

The major buyers of the spectrum in the pre-sale season were Uninor, Sistema Shyam and Videocon.

Though Idea and Vodafone too purchased spectrum in November last year, they would gain more going ahead as most of are to be renewed. The current recommended prices are 37% lower than the reserve price for the last auction in the 1,800 megahertz band, and 60% lower in the 900 Mhz band.

The new operators are disgruntled, as they had spent a large amount of money in the earlier auctions. Videocon which spent Rs 2,222 crore for six circles. The notional loss for paying the earlier price, is calculated at around Rs 500 crore. Added to that, the choice of the spectrum would have been 900 Mhz as opposed 1,800 Mhz which they ended up buying.

“It may be recalled that Videocon Mobile Services was compelled to bid at this exorbitant price during the Nov 2012 auction to ensure continuity of business since more than $ 2 billion was already sunk into the business,” said Arvind Bali, CEO of Videocon Telecommunications.

Bali also said that the successful bid price of next auction with price cuts, may not touch the reserve price of the November 2012 auctions.

The clear winner if this recommendation is accepted by Bharti Airtel and Vodafone will be be able to pay much lower expected. Both these operators have their licences coming up for renewal soon, and reduced price may slash huge regulatory risks that have been weighing them down.

“If the winning price in the upcoming auction is the same as the new recommended price, then our regulatory payment forecasts for Bharti and Idea would reduce by 44% and 36% respectively,” said a report by Goldman Sachs.

However, all is not well with the incumbent operators as well. Trai's suggestions on spectrum re-farming do not allow Bharti and Idea to retain their spectrum in the 900 mhz band.

“We believe this increases risk of Bharti and Idea losing the entire 900 MHz spectrum and hence spending more on capex and opex to migrate subs to the new network,” said Goldman Sachs.

Though this is negative for the company, top three telecom players might get some respite as minimum bidding in the 900 MHz band has been kept as 5 MHz. This may help participation by serious players only, opines HSBC Securities.

“As 900 MHz band auctions are not on a pan-India basis, the potential for disruptive bidding cannot be completely ruled out. The key risk for GSM incumbents will be the participation in 900 MHz auctions by RIL Jio which currently suffers from its spectrum holding in the 2.3 GHz band,” a report by HSBC Securities said.

Added to this, the regulator also inched up spectrum usage charges from the current 1% to 3% for broadband wireless access (BWA) spectrum. Mukesh Ambani controlled Reliance Jio and Tikona Digital Networks will lose out on this. However, it benefits operators like Bharti, Vodafone as they will not have to pay higher than five% of spectrum usage charges on acquisition of more spectrum.