Vodafone India and Idea Cellular are expected to be active bidders in the upcoming spectrum auctions for their 4G network roll-out, while Bharti Airtel -the most diversified spectrum holder – will look to bridge the gaps in its spectrum, India Ratings and Research (Ind-Ra) said in its latest report.
Bharti Airtel has the largest spectrum holding at present, of the total 770MHz, across bands (900MHz, 1,800MHz, 2,100MHz and 2,300MHz), followed by Reliance Jio Infocomm, which holds 596MHz spectrum across 800MHz, 1,800MHz, and 2,300MHz bands. In comparison, Vodafone has a total 302MHz spectrum and Idea 271MHz spectrum.
The spectrum holdings situation puts Vodafone and Idea at a disadvantage since they do not possess airwaves in the 2,300MHz category.
“Each of the top telcos are likely to bid in their respective top five circles by revenue, to plug in the data spectrum gaps in an effort to strengthen established operations,” Ind-Ra said.
Ind-Ra said that the upcoming telecom spectrum auctions will accelerate the ongoing industry consolidation, whereby the top telecom companies (telcos) will strengthen their spectrum holding positions, further marginalising smaller telcos, which are unlikely to meaningfully participate and invest further.
The auction, the firm said, addresses supply side issues adequately, since the spectrum which has been put under auction represents 87% of the existing spectrum.
The bidding is anticipated to be more balanced than the previous auctions in 2015 and 2014, where spectrum acquisition was driven by license expiry and hence continuity of operations.
“Participation will be also affected by the steep pricing of 700MHz band which constitutes 72% of the aggregate spectrum value at the base price,” Ind-Ra said.
The firm noted that the top telcos already have moderate-to-high leverage levels, which will weigh on their participation. It expects key players to invest in profitable and bigger circles and rationalise spectrum in others and divest non-core assets to free up capital for investment into 4G Long Term Evolution (LTE) infrastructure.
Ind-Ra expects limited participation compared to the quantity put on sale, as one-third of the spectrum supply is of the high-priced 700MHz band, which is 3x-4x more expensive than 900MHz/1,800MHz bands and also involves a new ecosystem.
Telcos’ interest however would be higher in circles where the pricing of 700MHz is lower than that of 800MHz/900MHz bands (Bihar, Madhya Pradesh, Uttar Pradesh -East and Uttar Pradesh -West), or where spectrum in 800Mhz and 900Mhz bands is not put to auction (Assam, Jammu and Kashmir, and North East).
The 1,800MHz band could generate higher interest as it is an alternative band for 4G and priced cheaper than 700MHz. The 2,500MHz is also a new ecosystem and participation is expected to be muted.