Airwaves: Kotak Equities questions 'failed auctions' narrative

Contrary to the 'failed auctions' commentary, Kotak Institutional Equities today said the top four operators are mostly done with building their spectrum footprint and the focus should now shift to monetising the massive data spectrum investment made in the past few years.
According to the brokerage house, the latest spectrum auction, which ended with an aggregate bid value of Rs 65,800 crore, is broadly in line with its pre-auction point estimate of Rs 70,000 crore.
"Rationality did prevail in general except for a few one-off cases (Mumbai and Gujarat) and the overall Rs 658 billion worth of bids is fairly close to the middle of our pre-auction expectation range," the report said.

The domestic brokerage firm said it is amused by the 'failed auctions' commentary in sections of the media.
"Everything has a context to it and the most critical context, now that the top four operators are hopefully mostly done building their spectrum footprint, is whether the industry pie can become large enough to justify the massive spectrum investments," it added.
It further noted that cumulative bids in auctions since 2010 now total Rs 3.5 trillion. For an industry with annual revenues in the vicinity of Rs 1.8 trillion and EBITDA around Rs 500 billion, "these are not small numbers", it explained.

According to the firm, the industry has placed its bets largely on one variable -- data volumes -- and a disappointment on that front could mean a long phase of "sub-par" industry economics.

Regarding the 700 MHz spectrum, the report said the industry exhibited a "good discipline" by not placing even a single bid for spectrum in this band. The report noted that the path to 700 MHz prices correcting to 'fair' levels is likely to be a "long one" and would need sustenance of this discipline from all industry operators.
"An ideal scenario would be that the industry bids for spectrum in this band only when the business case for buying this spectrum can be justified without any blue-sky data growth assumptions," the report said.

The auction of telecom spectrum that ended on October 6 attracted bids worth Rs 65,789 crore.
UK-based Vodafone's India unit was the most aggressive, taking home Rs 20,000 crore worth of spectrum. Bharti Airtel, the nation's biggest telecom operator, bought Rs 14,244 crore worth of spectrum, while Idea Cellular put in Rs 12,798 crore.
New-comer Reliance Jio has spent Rs 13,672 crore on spectrum buying.