India’s Biggest Spectrum Auction Starts, Telecom Firms Prepare To Boost 4G Coverage

India’s biggest ever telecom spectrum auction gets underway on October 1, with the government offering 2,355 mega hertz of mobile phone airwaves across seven bands. While the government is hoping to garner bids worth Rs 5.67 lakh crore at the base price, experts expect telecom companies to make measured bets in the auction.

7 Bidders, 7 Bands

Of the seven companies that have qualified for the auction, Bharti Airtel Ltd., Vodafone India Ltd., Idea Cellular Ltd. and Reliance Jio Infocomm Ltd. are expected to bid most aggressively based on the earnest money deposits that they have submitted to the Department of Telecom.

Reliance Jio submitted the highest guarantee of Rs 6,500 crore, almost the same as the combined deposits made by Vodafone, Idea Cellular, and Bharti Airtel, according to news report by news agency Press Trust of India (PTI).

Reliance Communications Ltd., Aircel Ltd., and Tata Teleservices Ltd. are the other bidders in the fray. Earnest money deposit is an indication of a company’s strategy to bid in specific circles and bands, since they get eligibility points.

Bharti Airtel is expected to invest close to Rs 5,500 crore in the current auction, while Idea Cellular is expected to pump in Rs 7,500 crore, according to estimates in equity research reports authored by ICICI Securities and Axis Capital. Vodafone India could spend at least Rs 10,745 crore in this auction, according to BloombergQuint’s calculations.

The brokerages point that Bharti Airtel’s incremental spectrum requirement is limited, while Idea and Vodafone will look to fill gaps in their spectrum inventory. Reliance Jio’s spectrum requirement is minimal since it has already acquired enough spectrum through auction, spectrum trading and sharing.

The 4G Battle

Currently, Bharti Airtel, Reliance Jio, and Reliance Communication have the ability to offer 4G services across India. Idea lacks spectrum to provide 4G services in 12 telecom license circles, while Vodafone is deficient in 14. Both could look to augment their 4G spectrum in the current round of auctions.

Circle And Band Specific Bids?

Analysts expect telecom companies to place bids keeping in mind their circle-specific requirements, over-leveraged balance sheets and diminishing margins due to intense competitive pressure.

Fitch Ratings said in a note on the telecom sector that , of the seven bands on offer, the 700 MHz band will see least demand because of relatively high prices, which could exert further pressure on the balance sheets and cash flows of telecom companies. The 700 MHz and 2,500 MHz bands are being put up for auction for the first time.

Bharti Airtel

The company will have to augment its existing spectrum in at least eight circles, data compiled by BloombergQuint shows. But both ICICI Securities and Axis Capital expect Airtel to be selective in its bidding. These are circles and spectrum bands analysts expect Airtel to bid for.

• Kolkata: The company has a 25 percent revenue market share in this circle, and is expected to buy spectrum in the 1,800 MHz band.
• Maharashtra: It has a 15 percent revenue market share in this circle and currently has no spectrum in the 1,800 MHz band. It will require spectrum to offer voice services.
• Kerala: The company has sufficient spectrum in 1,800 MHz band, but due to lower revenue market share it could look to expand its voice reach in this region.
• Punjab: Airtel has a 32 percent revenue market share in this circle, and could look to buy additional capacity in the 2,100 MHz band to boost its offering.
• Uttar Pradesh East, Uttar Pradesh West and Rajasthan: Airtel lacks data spectrum in these circles. The company is likely to buy spectrum in the 2,100 MHz band in this circle.
• Himachal Pradesh: The company has a 48 percent revenue market share here and could look to buy 2,100 MHz and 2,300 MHz spectrum to support its existing services.

Reliance Jio

According to reports by ICICI Securities and Axis Capital Reliance Jio could likely bid in 4 circles.

• Punjab, Uttar Pradesh West and Bihar: The company has no spectrum in the 1,800 MHz band.
• Uttar Pradesh East: Reliance Jio could look to capitalise on existing spectrum by buying additional spectrum in the 1,800 MHz band.

Vodafone India

ICICI Securities and Axis Capital expect Vodafone to be the most aggressive in this auction since it does not have 4G spectrum in 14 circles. The brokerages expect the company will look to acquire 4G spectrum in 2,100 MHz and 2,300 MHz.

• Delhi: Vodafone would require an additional capacity of 2,300 MHz spectrum to support growing data consumption.
• Mumbai: Vodafone has better revenue market share in this circle when compared to Airtel but it does not have 2,300 MHz spectrum here. It could look to buy 2,300 MHz spectrum to boost its services in this key circle.
• Kolkata: Vodafone could buy 2,300 MHz spectrum to protect its 35 percent revenue share in this circle.
• Maharashtra: Vodafone has only 1.3 MHz spectrum in the 1,800 MHz band whereas Airtel has 8.2 MHz. Vodafone has a 25 percent revenue market share, and would require additional spectrum to support services in this circle.
• Gujarat: It has a 24 percent revenue market share and no spectrum in the 2,300 MHz band while Reliance Jio has 20 MHz spectrum in the same band. Vodafone may buy spectrum in the 2,300 MHz band to boost its data offering.
• Andhra Pradesh: Vodafone has only 6.8 MHz spectrum in the 1,800 MHz band in what is one of the highest revenue generating circles. It would require spectrum in 1,800 MHz and 2,100 MHz bands, which could be used for expansion of 2G, 3G and 4G services. Currently, it has no spectrum in the 2,100 MHz band.
• Tamil Nadu and Chennai: Vodafone has a 30 percent revenue market share in this circle, but its spectrum inventory compares poorly with Airtel and Reliance Jio in the 1,800 MHz, 2,100 MHz, and 2,300 MHz bands. It will have to acquire 2,300 MHz band spectrum to offer data services.
• Punjab: Vodafone has only 8.1 MHz spectrum in the 1,800 MHz band whereas Airtel has 9.2 MHz in the 1,800 band, 10 MHz in the 900 MHz band and 20 MHz in the 2,300 MHz band. To survive in this circle, Vodafone will require spectrum in the 2,100 MHz band. Vodafone is currently not using the 2,100 MHz band to provide services.
• Rajasthan: Vodafone has only 0.8 MHz spectrum in the 1,800 MHz band, in a circle where it has a 22 percent revenue market share. In contrast, Airtel has 10.2 MHz and Reliance Jio has 10 MHz in this band.
  Madhya Pradesh: Vodafone will have to buy more spectrum in the 2,100 MHz band to raise its revenue market share in this circle, which is currently the lowest among all the circles the company operates in.
• Himachal Pradesh: Vodafone may need to buy more spectrum in the 1,800 MHz band, as it currently has only 5.7 MHz spectrum, while Airtel has 22.6 MHz spectrum across the 900 MHz, 1,800 MHz, and 2,100 MHz bands.
• Bihar: The company has no data spectrum in this circle. To offer additional 3G and voice services, it may look to buy spectrum in the 2,100 MHz band.
• Assam: Vodafone has only 6.9 MHz in the 1,800 MHz and and 5 MHz in the 2,100 MHz band, while Airtel and Reliance Jio are well positioned in this circle. Vodafone may have to augment spectrum in the 1,800 MHz band to protect its 23 percent revenue market share.

Idea Cellular

Idea Cellular holds the least amount of spectrum among the big four telecom companies. It is also deficient in 4G spectrum in 12 circles. ICICI Securities and Axis Capital expect Idea to expand its 1,800 MHz holding and 4G footprint by acquiring spectrum in the 2,100 MHz and 2,300 MHz bands.

• Delhi: Idea’s spectrum inventory falls short of its peers and will require additional spectrum in the 1,800 MHz or 2,100 MHz band to support both 2G and 4G services. It has no spectrum in the 2,100 MHz band in this circle.
• Mumbai: Idea has only 6.4 MHz spectrum in Mumbai and will have to buy data-friendly spectrum in the 2,100 MHz band.
• Maharashtra: Idea could look to purchase spectrum in the 1,800 MHz band to protect its 36 percent revenue market share in this circle.
• Gujarat: Idea has only 1.6 MHz in the 1,800 MHz band, while rival Airtel has 11.2 MHz spectrum.
• Uttar Pradesh West: Idea has a 29 percent revenue market share but only 2.2 MHz spectrum in the 1,800 MHz band, compared to Airtel’s 11.2 MHz spectrum.
• Uttar Pradesh East: Idea has 6.2 MHz administered spectrum in this circle. To be able to provide 4G services, the company will look to buy liberalised spectrum in the 1,800 MHz band.
• Rajasthan: Idea has no spectrum in the 2,100 MHz band and could look to buy spectrum in 1,800 MHz and 2,100 MHz band.
  West Bengal: Idea has only 6.3 MHz spectrum in the 1,800 MHz band while Airtel has 37.8 MHz spectrum across the 900 MHz, 1,800 MHz, 2,100 MHz and 2,300 MHz bands.
• Bihar: Idea has 5.7 MHz spectrum in the 1,800 MHz band and no spectrum in the 2,100 MHz band while Airtel has 40.6 MHz spectrum across four different bands. Idea will have to buy 2,100 MHz spectrum to offer better 3G and voice services in the circle.
• Assam: Idea will have to buy 1,800 MHz spectrum if it wants to increase its revenue market share by offering 4G services.