Spectrum Auction Results – More Spectrum Competition

India’s 2014 2G auctions ended yesterday after just 11 days and 68 rounds of bidding. Through these auctions, the Indian government was able to raise Rs 61,162.22 crores from the sale of 353.2 MHz of spectrum, with the two circles of Delhi and Mumbai accounting for 57% of the total money raised.

You can read what the participating telecom operators are saying about the 2014 2G auction results here.

Competition Scenario

The auctions are likely to reset competition scenario in the country. Considering large stakes are involved for the government and telcos, we should not be surprised if the auctions go on for over 100 days,” said Hemant Joshi, a partner at Deloitte Haskins and Sells, an audit and consultancy firm. “With the very low ARPUs (average revenue per user) and proliferation of net neutrality, telcos’ profitability and cash flow will be negatively impacted on account of the auctions and will further leverage the strained balance sheet,” Joshi said. “And this will reduce the availability of funds for buying new technologies and could delay or adversely impact the benefit expected from the Digital India programme.” The auction may fetch the government over Rs.82,000 crore at the base price. The eight bidders for air waves have lodged bank guarantees of Rs.20,400 crore for the auction.

Given this fast progressing scenario, for a successful run in the telecom industry, obtaining spectrum licenses was identified to be the key.

It is with this background that the competition concerns in the telecom sector are analyzed.

Whether its 2G/3G/4G – the game changer would be cost effective data services.

Factual Situation

The total spectrum put to auction is 103.75 MHz in 800 MHz band, 177.8 MHz in 900 MHz band and 99.2 MHz in 1,800 MHz band – a total of 380.75 MHz in 800, 900 and 1,800 MHz. The government will also put on sale 5 MHz in the 2,100 MHz band, which is used for 3G services in 17 out of 22 telecom areas.

The reserve price approved is Rs.3,646 crore pan-India per MHZ in 800 MHz, Rs.3,980 crore for 900 MHz band pan-India ; and Rs.2,191 crore pan-India in 1,800 MHz band.

The government also approved a reserve price of Rs.3,705 crore per megahertz for third generation services.

According to reports, the government expects to mop up Rs.75,000-Rs.100,000 crore from the auction which was mandated after the so-called 2G scam following the previous UPA government’s junking the auction system for a first-come-first-serve basis spectrum distribution that led to charges of large-scale corruption and eventual fall of the government of Prime Minister Manmohan Singh.

“Industry is happy that they can expect more spectrum after the auction. At the same time, they are deeply unhappy about the limited amount of spectrum availability and the steep reserve prices. The auction is starting at a high a base or reserve price; the final price could be much higher. Telecom operators will have to shell out a very large burdensome amount,” Mahesh Uppal, director of telecom consultancy firm Com First, told IANS.

However, Jaideep Ghosh, partner, KPMG Advisory Services, thought the impact will not be so bad. “I think spectrum renewal plans are factored in the business plans of the operators and the payment has to be made over a period of 10 years. So I do not think for operators it is a very humongous amount,” Ghosh told IANS.

In December 2015, seven licences each of Idea Cellular and Reliance Communications, four licences of Bharti Airtel and six licences of Vodafone will complete their 20-year term after which they have to be renewed.

(Above extracts from http://www.firstpost.com/business/bad-news-customers-call-charges-may-go-spectrum-auction-2086921.html)