Spectrum auction to be a muted affair as telcos already hold key bands

Loss of appetite: The spectrum auction this year could be a muted affair, with telcos' hunger for airwaves ebbing away after the feasts of 2010 and 2022

There is something about the Barcelona telecom summit that makes people open up. At the recent Mobile World Congress 2024, in the Spanish city famous for its architecture, football club, and nightlife, Indian telecom was in the limelight for its fastest 5G rollout.

While Department of Telecommunications Secretary Neeraj Mittal made presentations on India’s tech and telecom achievements, including the 5G coverage, he also spoke to the media about a less glamourous subject: Spectrum, which is radio frequencies allocated to mobile phone service providers and other sectors for communication over the airwaves. The Tamil Nadu-cadre officer of the Indian Administrative Service reportedly said telecom companies were not likely to be big spenders during the upcoming spectrum auction expected in two to three months.

Indeed, telecom operators are not likely to bid aggressively as most of them already possess significant spectrum holdings, according to Prashant Singhal, EY Global TMT Emerging Markets Leader. “5G spectrum monetisation is yet to kick off in India and we have the lowest data tariffs globally. Investments ahead of time in spectrum will not be justified,’’ Singhal told Business Standard. He added that bidding is likely to be concentrated in circles requiring renewal.

In 2022, ahead of the 5G launch in India, two private telcos — Reliance Jio and Bharti Airtel — had gone all out at the auction, which notched up a total of Rs 1.5 trillion (roughly $20 billion) for the exchequer. That is the highest amount any telecom auction in India has netted so far, almost double the 4G airwaves sale in 2021.

More than a decade before that, in 2010, the government garnered Rs 50,968.37 crore from 3G spectrum auctions, which went on for over a month. At that point, it was an eye-popping amount that telcos spent for spectrum — a scarce resource — after years of tussle over vacation of unused spectrum from Defence Forces.

Analysts explain that telcos have become more prudent compared to how they were in 2010, when spectrum buying was a race without focusing on a company’s business model. The sharp decline in the number of operators, from 20-odd to three private players over the years, is seen to be a conse­quence of over-bidding at spectrum auctions, among other reasons.

In fact, the government has decided to auction spectrum more frequently, preferably on an annual basis, to improve the quality of mobile services. Such a move also ensures that telecom businesses remain sustainable.

What’s on offer

According to EY’s Singhal, annual spectrum auction is a good policy, as it balances the financial outlay of telecom operators and contributes to efficient spectrum management. “Operators can buy the spectrum that is required. They can better optimise their capital expenditure, which in turn translates to lower prices for consumers,” he says.

On February 8, the Union Cabinet approved the auction of 10,523.15 MHz of spectrum across bands at a reserve price of Rs 96,317.65 crore. All unsold spectrum from the last sale will be up for bidding again. This would mean airwaves in the 800, 900, 1800, 2100, 2300, 2500, 3300 MHz and 26 GHz bands — covering a large chunk of voice and data spectrum.

Analysts have pointed out that the higher frequency bands are expected to command a lower price, similar to the last auction. And, airwaves in the 800 MHz and 2300 MHz bands are expected to get a tepid response, given that they received no bids last time.

In the last round of auctions, which ended on August 1, 2022, the government had put up 72,098 MHz of 5G spectrum, capable of offering ultra-high-speed mobile internet connectivity. Of this, 51,236 MHz, or 71 per cent of the total, was sold.

Under the telecom head, the latest Budget has listed non-tax revenue collection of Rs 1.2 trillion in FY25, 28.5 per cent higher than the revised estimate of Rs 93,541 crore in FY24. The telecom revenue received by the Centre in FY23 was Rs 64,835 crore, up 4.5 per cent from the previous year.

Waning appetite

Earlier this year, Bharti Airtel CEO and Managing Director Gopal Vittal said the company would be keen to secure more sub-GHz spectrum. After the company’s Q3 results, Vittal told investors that Airtel would want to improve its 5G coverage indoors. Otherwise, Bharti Airtel has maintained that it won’t be a big spender in the next auction, as it does not need spectrum for some time and that it is aiming to reduce its spectrum auction budget. It also wants to re-farm its mid-band airwaves, such as 1800 MHz and 2100 MHz, once 25 to 30 per cent of smart devices become 5G-enabled, up from 15 to 20 per cent last year.

Airtel, with 65 million 5G users at the end of December, is not in favour of spending big bucks to buy airwaves in 700 MHz — one of the most expensive spectrum bands.  Incidentally, 700 MHz, which had fetched the highest average price last time, will not be put up for auction this time.

Airtel’s rival, Reliance Jio, followed a different strategy on 700 MHz. Jio bought in this band for all the 22 telecom circles for Rs 39,270 crore. It was the only telco to purchase spectrum in that band, giving it a significant leg-up in accessing large swathes in semi-urban and rural areas.

In December 2023, senior officials at Reliance Jio told this newspaper the company would follow a similar strategy as Airtel for the upcoming auctions, since it did not require large quantities of spectrum. Jio had acquired 24,740 MHz of 5G airwaves worth Rs 88,000 crore in 2022.

Spectrum renewal

Reliance Jio has no spectrum renewal in 2024, but Airtel and Vodafone Idea (Vi) will need to ensure they have enough options. For Airtel, spectrum renewal worth Rs 4,200 crore is due in the 900 MHz and 1800 MHz bands in Uttar Pradesh (East), Uttar Pradesh (West), West Bengal, Assam, Bihar, Jammu and Kashmir, and Odisha.

Vi needs to renew spectrum worth more than Rs 1,950 crore in the 900 MHz in West Bengal and Uttar Pradesh (West).

The Department of Telecom has given a three-month extension for Airtel’s expiring spectrum as a stop-gap measure until the auction is conducted to avoid a disruption in telecom services. Airtel paid Rs 35 crore for the extension.

Marginal players

Two other players, which had taken part in the last auction, are expected to put up even less of a show this year. Vi and Adani Data Networks are locked in negotiations with the DoT to be exempted from the government’s minimum rollout obligations and the hefty penalties for not meeting the norms.

Burdened by debt and erosion of user base, Vi is unlikely to buy more spectrum in 2024. CEO Akshaya Moondra said in January the telco remained in discussion with vendors for the 5G rollout as well as developing use cases, but stressed that it won’t be looking to buy more spectrum.

Adani Data Networks had acquired 400 MHz airwaves in the service areas of Gujarat, Mumbai, Andhra Pradesh, Karnataka, Tamil Nadu, and Rajasthan for Rs 212 crore. The company says it plans to use the airwaves for captive 5G use.

In conclusion

As telcos enter the bidding ring this year, the auction of 2024 will get more clarity on whether it would help the government maximise revenues or make the industry dial the next level.