With Mukesh Ambani’s Reliance Jio entering the fray, bids for the auction of spectrum that begins from March 4 are likely to be fiercely competitive.
On Monday, Reliance Jio announced its participation in the auction together with four other operators, whose licences are up for renewal: Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications. Tata Teleservices, Aircel and Uninor will also be participating but Russian operator Sistema Shyam has decided to abstain.
Crisil estimates that operators will shell out over Rs 90,000 crore to win spectrum, pointing out that nearly half the Rs 1,20,000 crore of annual revenues is at stake for the large operators. With RJio’s entry, the number could be higher.
The telcos face the Herculean task of raising their blended average voice and data revenue per minute (ARPM) by 5 paise to generate additional cash flows needed to service incremental debt. The increase of 5 paise, which translates into a steep hike of 10 percent over a year, might be impossible for operators to push through given the market is price sensitive.
While Bharti, Vodafone, Idea and RCom must win back their spectrum to be able to stay in business, others will use the auctions to tank up on their spectrum holdings. RJio could turn out to be the toughest competitor as Aircel, Tata Tele and Uninor are expected to take up spectrum only in some select circles. Having won pan-India spectrum for broadband wireless access in the 2300 MHz band in 2010, Reliance is yet to roll out its services but in the February 2014 auction it bought 1800 MHz spectrum across 14 circles.
This reflected a change in the company’s strategy – from being a potential data player it signalled it would provide a combination of data and voice services by using LTE technology which can be deployed on the 1800 MHz band spectrum. By applying for the March auction, Reliance is taking forward this strategy.
Although the earnest money deposited by the company was not known, it appears Reliance will bid for all bands of spectrum — 800, 900, 1800 and 2100 MHz, focusing more on the 800 MHz band.
This is because the 800 MHz band, traditionally used by CDMA operators, has now been liberalised and thrown open to the GSM operators and can be used to launch voice and data services using the LTE technology. Although the ecosystem for deploying LTE technology in the 800 MHz band is not immediately available, it can be developed.
Further, with very little 1800 MHz spectrum as a back-up and only 5 MHz of 3G spectrum being put up for auction across 17 circles, operators are likely to look at 800 MHz as a back-up for their 900 MHz spectrum. That’s where the four large telcos will face the maximum competition from RJio.