Experts and industry watchers believe that mobile internet will be the primary driver of strategies in the biggest ever round of spectrum sale started on Saturday. The government is putting under the hammer, 2,354.55 MHz of airwaves across seven frequencies, all of which can be used to deploy high-speed 4G-LTE services.
At reserve price, the entire quantum of spectrum is worth Rs 5.66 lakh crore.
The only prior occasion when a similar amount of spectrum that could be used for data services was put to auction was in 2010, when airwaves for use of mobile internet were auctioned for the first time resulting in revenues to the tune of Rs 1.67 lakh crore for the exchequer.
“Voice is passé now, this time around the focus will be around data. One must not underestimate the 2010 auctions, because that was the first step. If enough spectrum was put to auction then, incumbents then would have had pan-India position on data, and they would have been in a much better situation on data. Whosoever doesn’t bid this time to build on data, will be relinquishing their position to someone else,” said Sanjay Kapoor, former CEO of Bharti Airtel.
For data services, the band considered to be the most premium is 700 MHz, due to its propagation characteristics
that make it more efficient than other bands allowing it higher penetration capability inside buildings.
However, the industry deems that the price at which the government intends to sell airwaves in the said frequency is very high. Telcos have also said that not only is the technical ecosystem nascent but the fact that diverting capital expenditure to acquiring spectrum in 700 MHz would limit their capability to invest in rolling out networks where they already hold airwaves.
The Telecom Commission has approved a record high base price of Rs 11,485 crore per MHz for the 700 MHz band, and if all available quantum under this frequency gets sold at the price suggested by Trai, it alone could yield a
whopping Rs 4 lakh crore.
COAI director general Rajan Mathews, who does not expect much demand in the 700 MHz band, said that the high price point would have made the sale of this band challenging, which is why the government had to make alternative amends to incentivise firms to bid for it.
“There is a possibility that the NIA was structured in the way because they knew that given the price point of the 700 MHz spectrum, it would be a challenge. So they tweaked the payment terms, to incentivise telcos. But this won’t really alter the demand, because the operators might take advantage financially in the shorter term, but the rate at which it is being offered is not the best one,” Mathews said.
Kapoor said that even though the 700 MHz band was highly potent, there wasn’t much appetite in operators to go for it. “700 MHz is still a very expensive spectrum, cash flows might have been eased out in terms of payment conditions, but it is very expensive given the existing returns of operators,” he said.
“Only in some circles, is its price close to that of 900 MHz, but an operator would not want to buy it only in a few circles, and build the ecosystem there, economies of scale won’t be in the firm’s favour. In my opinion, operators would give it a pass this time. Jio, if at all, may want to strengthen their in building capacity, may go for 800 MHz,” Kapoor added.
An analyst with a leading consultancy firm suggested the 3G ecosystem should not be written off and that it would remain an important aspect.
“As a post-auction strategy, operators might decide whether they want to roll out 3G or 4G, but it will definitely be a data-driven auction. The technology will depend on how they see the revenues coming in circle-wise from each technology,” Rishi Tejpal of Gartner said.
Kapoor suggested that while Jio might want to amass some more capacity in 800 MHz, Airtel, Idea and Vodafone would have to choose between placing bets on 3G or 4G, or both.
He said that Idea may not have enough funds to bet on both, but Vodafone India, on back of the recent $7 billion equity infusion by its parent, might have the luxury to invest in both the mobile internet technologies.