Spectrum auction begins; heavy bidding likely despite plaints
04 Mar 2015
The latest round of telecom spectrum auction got under way today, reportedly amidst intense bidding, with the government hoping to garner up to Rs1,00,000 crore despite complaints that it is not releasing enough airwaves.
Reports say telecom firms are likely to commit at least $13 billion for the auctions. Over 75 per cent of this is expected from the so-called incumbent or established operators.
The bidders' net debt is expected to rise as they fund spectrum payments while competition limits their ability to raise tariffs, particularly with the impending entry of Mukesh Ambani-controlled Reliance Jio, the new kid on the block.
The top-three telecom firms Bharti Airtel, Vodafone India and Idea Cellular, could commit around $2.5 billion to 4.5 billion each to renew their expiring spectrum in six, seven and nine Indian "circles" (i.e. regions), respectively. They are also likely to acquire additional spectrum to support fast-growing data services.
Idea is most exposed to the auctions as it needs to retain its expiring spectrum in circles which contribute around 70 per cent of its annual revenue. Such revenue contributes 45 p;er cent and 35 per cent of annual Indian revenue for Vodafone and Bharti, respectively.
Telcos whose 900MHz spectrum is expiring will prefer to retain this bandwidth, as having to switch frequencies could require significant capex and disruption of the already-established network.
Reliance Communications will be the least affected of the top four, as Fitch believes it is likely to commit a maximum of $667m in seven circles, where we expect competition for spectrum will be lower. Rcom's management expects this cost to be lower.
