Spectrum trading rules: A fillip for smaller telcos

The advantage for smaller players has also come primarily on account of the recent change in rules for spectrum trading.

Worker climbing on mobile telecommunication tower at Anik BEST Depot in Sion on Friday. (Express Archive)

The approval of spectrum trading norms earlier this year has set the ball rolling on a much-anticipated consolidation in the telecom sector, with recent deals involving Videocon Telecommunications-Idea Cellular and Reliance Communications-Sistema Shyam Teleservices setting the stage for more deals that offer an opportunity for loss-laden smaller players to exit the sector by monetising their biggest asset — the spectrum. The two recent deals mark a departure from similar transactions seen earlier in the sector, wherein acquisition of the entire business was done as a whole and was not merely restricted to the transfer of spectrum between operators.

“There have been many major deals in telecom before Videocon-Idea, but this is the first major deal after spectrum trading was allowed. Earlier, since buying spectrum was not allowed so it was not possible for companies to acquire spectrum without taking over the whole business. Now, they can buy another operator’s spectrum in part of whole,” Mahesh Uppal, Director, ComFirst India said.

After having sold its spectrum in two circles of Uttar Pradesh (West) and Gujarat to Idea Cellular last week, there are indications that Videocon Telecommunications could be involved in more deals. Experts say the deals have assumed significance amid growing uncertainty regarding the upcoming spectrum auctions, which are likely to be held early next year. “Uncertainty pushes up prices, this is the basic tenet of economics. And, it holds the same for this recent telecom deal and the upcoming spectrum auctions,” an analyst with a leading consultancy said, declining to be named regarding specific deals of companies.

Even though the Cabinet had in January cleared spectrum harmonisation to allow strategically important spectrum for use of defence and make the rest available for commercial use, the details regarding the same are yet to be finalised. The Union Cabinet had in January cleared the swapping of 15 MHz of the 2,100-MHz spectrum band held by the defence ministry in return for the same quantum in the 1,900-MHz band owned by the Department of Telecommunications. The telecom companies had at that time said it may take around a year or even more for the harmonisation process to be complete.

Operators are also trying to focus more on circles already in operation rather than investing in a new circle and starting from scratch, analysts said. “The spectrum which Idea bought was contiguous and is ideal for launching LTE. Given the forthcoming competition in the data services, having LTE is an important element of operator strategy. Acquisition of spectrum also removes any future uncertainty on availability and pricing of spectrum,” Ashish Basil, Partner, Transactions Advisory Services, Ernst & Young, said.

Experts added that with competition from Reliance Jio’s impending entry in the telecom sector have also pushed up the pricing expectations of companies for the proposed spectrum auctions next year. The Videocon-Idea deal has also set a benchmark for returns for smaller companies in spectrum trading. When Videocon Industries last week announced sale of its spectrum of two of its six circles to Idea Cellular for Rs 3,310 crore. Effectively, in a span of over two and half years, between the time that Videocon had bought the spectrum at around Rs 1,670 crore through the auction route, the telecom company has made a gain of over two times its initial cost. On November 2, Reliance Communications has entered into an agreement to acquire Russian conglomerate Sistema JSFC’s Indian telecom business in a deal valued at around Rs 4,500 crore.

Through the Videocon deal, Idea has gained spectrum in these two circles across different bands to offer 4G services. Though Idea had 5 MHz of spectrum in both 900 and 2100 MHz bands in the two circles, in 1800 MHz it had only 1.6 MHz in Gujarat and 2.2 MHz in UP (West). With the addition of 5 MHz of contiguous 1800 MHz spectrum in these two circles, its spectrum bank for offering 4G services will be complete.

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After completion of this transaction, Idea would have full range of mobility services across 2G (GSM), 3G (HSPA) and 4G (LTE) technologies in all of its eight leadership markets of Maharashtra & Goa, Kerala, Andhra Pradesh & Telangana, Madhya Pradesh and Chhattisgarh, Haryana, Punjab, Gujarat and Uttar Pradesh (West) .

The advantage for smaller players has also come primarily on account of the recent change in rules for spectrum trading. In August this year, the government approved changes in spectrum trading rules. The spectrum sharing is allowed only among two telecom operators in the same frequency band within the same telecom circle.

Going ahead, analysts feel the proposed changes in spectrum caps will facilitate more spectrum trading deals among the bigger telecom players. Currently, spectrum holding by telecom operators is capped at 25 per cent of the total spectrum in a circle and 50 per cent in a given band, after any form of sharing or trading of spectrum.

Aanchal Magazine

Aanchal Magazine is Senior Assistant Editor with The Indian Express and reports on the macro economy and fiscal policy, with a special focus on economic science, labour trends, taxation and revenue metrics. With over 13 years of newsroom experience, she has also reported in detail on macroeconomic data such as trends and policy actions related to inflation, GDP growth and fiscal arithmetic. Interested in the history of her homeland, Kashmir, she likes to read about its culture and tradition in her spare time, along with trying to map the journeys of displacement from there. ... Read More