March 2015 Auction: Who will be the real winner?

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telecom-tower-indiaNext spectrum auction is just few days away and Government is expecting to make around Rs. 100,000 crores out of it. While past auctions where for new spectrum released by the government or canceled by the supreme court in 2G scam, this auction will be mostly for expiring 900MHz and some 1800MHz held by incumbent operators. So operators must buy back their spectrum to continue its service.

Will operators be able to buy back their 900MHz spectrum?

While deep pocket players like Airtel, Idea and Vodafone will try hard to get back their 900MHz, debt-ridden operators like Reliance may go for 1800MHz in fewer profitable circles. Airtel, Idea Cellular, and Vodafone may bag Reliance's 900MHz spectrum it holds in category C & B circles where reserve price are set much lower. At the end of the day, Idea will be the one spending the largest amount to buy back its spectrum in 9 circles.

New entrants in 900 MHz band to go for 3G

In most circles, only two operators apart from BSNL/MTNL hold efficient 900 MHz. But this was changed when Idea was able to bag 5 MHz spectrum in the last auction along with Airtel and Vodafone in Delhi circle. Since Idea already had 2G operations in Delhi on 1800MHz, they choose to deploy 3G over efficient 900MHz. Similarly in next auction also we can expect new entrants in few circles and they may even go for 3G over 900 MHz.

Service interruption due to delay in allocation

Subscribers would face service interruption due to delay in allocation of new airwaves by DOT. This was the case in Delhi were DOT allocated newly won spectrum at the last moment just one month before the expiry of the current license. Finally, DOT had to give 45 days extension to Airtel and Vodafone to switch over to the new frequency in Delhi. We may also see the same scenario in many circles after this auction ends if DOT is inefficient in allocating the frequencies.

Only 5MHz of 2100MHz 3G spectrum for auction

DOT is set to auction just 5 MHz of 2100 MHz band in each circle, with base reserve price finalized at Rs 3,705 crores per MHz overruling TRAI's recommendation of 2,720 crores per MHz. Defense has already agreed to swap deal for 15MHz 2100Mhz spectrum, but it won't be put for next auction as DOT is yet to allocate a dedicated defense band. This is will lead to an artificial scarcity of spectrum and will shoot up the price.

Operators spend, Government gets and consumers loose

Operators will spend as much money they can to retain their efficient 900 MHz band. This was witnessed in the last auction when Airtel, Idea, and Vodafone fight hard to get 900 MHz band in metro circles Delhi, Mumbai and Kolkata, which in turn shooting up the price for spectrum. At the end of the day, government will get most out of this fight between operators.

Already debt ridden telecom sector cannot absorb any more cost and as always operators will put the burden on the consumers in the form of tariff hike. We already saw this after previous auctions and this time it will be much bigger. Even profitable operators like Idea will loose significant amount on next auction to buy back its spectrum in 9 circles which accounts for its 75% total revenue.

Who do you think will be the real winner of this auction?

Reported By

An IT professional who has got great passion for telecom. Has been closely watching Indian telecom space since 2009.

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