Spectrum bids generate Rs1.1 trillion revenue for govt

New Delhi: Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd, India’s top three mobile phone operators that were battling to retain their existing licences are estimated to have committed a combined Rs.90,000 crore to secure telecom spectrum in a bruising bidding war that ended on Wednesday after 19 days.

The auction is estimated to have assured the government a record revenue of almost Rs.1.1 trillion from the sale of spectrum in 800MHz, 900MHz, 1,800MHz and 2,100MHz bands, after 115 rounds of bidding, exceeding the previous high of Rs.1.06 trillion that the government raised from the first such airwaves sale in 2010. The government had conducted three more smaller auctions in between, generating Rs.2.89 trillion in total revenue from such sales.

About 89% of the spectrum on sale has been provisionally allocated to bidders in the latest auction, the government said in a statement after the auction concluded on Wednesday.

Assuming that the three operators were able to retain spectrum that they may have lost if they failed to renew licences that were set to end later this year, back-of-the-envelope calculations show Bharti Airtel would have bid around Rs.27,500 crore, Idea Rs.28,000 crore and Vodafone would have bid around Rs.34,500 crore.

Among the other bidders, Reliance Communications Ltd is estimated to have bid a total of around Rs.2,300 crore; Tata Teleservices around Rs.4,500 crore; and Uninor the local unit of Norway’s Telenor, is expected to have bid around Rs.2,000 crore. Mukesh Ambani-controlled Reliance Jio Infocomm Ltd, which is set to start operations later this year, is estimated to have bid Rs.10,000 crore.

Operators will have to raise tariffs to pay for the spectrum, said Rajan S. Mathews, director general, Cellular Operators Association of India or COAI, a lobby group that represents the operators.

“The increased financial burden will lead to the industry’s cost structure being changed drastically,” Mathews said. “Hence, the operators will not be left with much choice but to increase the tariffs so as to meet the financial commitments to the government.”

The telcos that participated in the auction either declined to comment or said they will comment after the government officially publishes the outcome of the spectrum sale.

It is still unclear, what the exact bidding positions are as the Department of Telecommunications (DoT) has opted to take a cautious stand regarding the Supreme Court case on the auction. On Thursday, the Supreme Court will rule on a number of cases filed by telecom operators challenging the rules and regulations of the auction.

Successful bidders have to pay between 25% and 33% of the winning bids up front, depending on the spectrum band. They can chose to pay the rest in 10 equated annual instalments after a two-year moratorium. However, the upfront payment would still be more than Rs.40,000 crore for the local telecom operators, that already owe lenders around Rs.2.5 trillion.

The record bids for spectrum will weigh on the balance sheets of the operators as they are unlikely to be able to increase tariffs to offset the increased outgo because of higher interest payments, analysts say.

“Government has won but whether India and industry will win is contingent on how the money collected is used for building telecom infrastructure. The debt burden for industry would definitely increase by 70-80% of the spectrum price paid,” said Hemant Joshi, a partner at consultant Deloitte Haskins & Sells. “While economics demand immediate tariff increase, market forces will determine the quantum and timing of the increase. This will further hasten the process of consolidation in the industry.”

Interestingly, the biggest increases in bids over the last few days have been in the 800MHz and 900MHz bands, rather than the 1800MHz and 2100MHz bands. This points to the fact that the telcos have bid keeping in mind the expected surge in data usage in the country. The 800MHz band, thus far used by telecom operators that deployed networks based on the less popular CDMA technology standard, is now expected to be used by telcos for FD-LTE (Frequency Duplex-Long Term Evolution) standard of 4G services that enable data speeds of 100-150 Mbps on a wireless device. Similarly, 900MHz that was thus far used for providing 2G services is being deployed across the country for 3G services. The 1800MHz band can also be used for FD-LTE while 2100MHz band is traditionally known as the 3G band, but both these require a far higher cost to build networks as compared to the lower bands.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.