Teledensity unlikely to affect spectrum auction

More than half of Govt's income may to come from just two circles - Delhi and Mumbai

Telecom operators are likely to fight for spectrum with high teledensity in the auctions beginning February 3. While the government has made spectrum cheaper in low-teledensity circles, demand for the airwave will depend on a different parameter.

More than half the government’s income from the auctions is likely to come from two circles — Delhi (teledensity of 222.5) and Mumbai, the highest revenue zone for operators.

Analysts have said prices in these two circles are likely to rise at least by half. While Mumbai is also a high-teledensity circle, the Telecom Regulatory Authority of India, which provides data on teledensity, combines the teledensity of Mumbai with that of the Maharashtra circle, which stood at 87.65 per cent as on October 31). As the auction of 1,800-MHz (all 22 circles) and 900-MHz (only Delhi, Mumbai and Kolkata) spectrum will be held simultaneously, operators such as Bharti Airtel and Vodafone India, which have spectrum in the 900-MHz band, will try to retain the airwaves they currently hold. This will raise prices.

If incumbents Airtel and Vodafone fail to get eight MHz each in Delhi and Mumbai, they will have to buy the remaining airwave in the 1,800-MHz band to serve old subscribers. Considering the efficiency of the bands, companies will try to get at least 1.5 times the amount in the 1,800-MHz band.

With Reliance Jio entering the race, each of these two circles are likely to accommodate three players each. Also, companies such as Idea Cellular are likely to bid for spectrum in the Mumbai circle.

In the 1,800-MHz band, a few circles such as Bihar, Uttar Pradesh (west) and Jammu & Kashmir may not attract bidders due to shortage of spectrum. Teledensity in Bihar, which saw fierce bidding in the November 2012 auction, is low (44.08, as of October 2013). Other circles with low teledensity (below 70) are Assam (47.48), Madhya Pradesh (54.89), Uttar Pradesh (55.21), Odisha (61.42), Jammu & Kashmir (63.47), Kolkata and West Bengal (69.31). These aren’t likely to attract many, though the government has kept the reserve price of spectrum below Rs 100 crore, starting at just Rs 5 crore for one MHz of spectrum (Jammu & Kashmir). Companies except Reliance Jio are likely to buy top-up spectrum in these circles. For spectrum in the 1,800-MHz band, Reliance Jio is believed to be bidding for all circles, except three-four where the available quantity is less.

“Established operators need to extend their use of spectrum, which is coming to an end after 20 years. So, there will be targeted auction activity. Aggressive bidding will take place only in Delhi and Mumbai,” said a PricewaterhouseCoopers India analyst.

An Angel Broking analyst said, “The success of the coming auction depends on the Mumbai and Delhi circles, as these account for the majority of the reserve price. I don’t expect much demand, except in these two. Reliance Jio is likely to bid for the 900-MHz spectrum, as the efficient band will ease its fourth-generation services, and this band, coupled with spectrum in the 1,800-MHz band, will help the company roll out 2G services.”

Earlier this month, eight telecom operators deposited Rs 11,500 crore (in the form of bank guarantees) as earnest money to the government for spectrum. The FY14 Budget target from spectrum sale was Rs 11,343 crore. Bharti Airtel topped the list, in terms of paying the highest earnest money (Rs 3,700 crore), followed by Vodafone (Rs 2,800 crore) and Reliance Jio (Rs 2,600 crore). The three companies accounted for 78 per cent of the total earnest money collected. Idea Cellular paid Rs 1,565 crore.

Bharti Airtel and Vodafone are expected to bid for pan-India 1,800-MHz band spectrum and for the 900-MHz band in three circles. Telewings, which had operations in six circles, might bid for 10 new circles, but stay away from high-teledensity circles such as Mumbai, Delhi, Karnataka and Tamil Nadu, said analysts. The company has paid earnest money of Rs 330 crore. Reliance Communications is likely to bid for additional spectrum in circles where it doesn’t have five MHz in the 1,800-MHz band.