Spectrum auction: Telcos may bid conservatively

Going by the earnest money deposited with the department of telecommunications (DoT) last week, telcos are likely to bid conservatively at the spectrum auctions in March. Based on the deposits of Reliance Jio, Bharti Airtel and Vodafone Idea, the total amount bid would be around Rs 86,290 crore, and going by the upfront payment that the operators would make, the government would be able to realise around Rs 43,145 crore.

Add to this, around Rs 20,000 crore earned annually from licence fees and spectrum usage charges, and the government would be able to realise its budgetary target of Rs 53,986.72 crore from telecom receipts. Still, the amount would be far short of Rs 3.92 lakh crore, which is the worth of total spectrum being put up for auctions, based on the reserve price.

While neither telcos nor the DoT have disclosed the EMD amount, sources indicated that Jio’s deposit of around Rs 9,000 crore is the highest followed by Bharti Airtel’s Rs 3,000-3,500 crore. Vodafone Idea has made the smallest deposit of around Rs 500 crore.

The deposits indicate Jio would be renewing spectrum expiring later this year and also buying more to fill the gaps and to leverage its existing spectrum holding to the maximum. Bharti Airtel may not renew all that is expiring this year but is likely to buy new spectrum in some 4G bands, while Vodafone Idea may buy some new spectrum but is unlikely to renew what is expiring.

Also, none of the operators are going to bid for the premium 4G spectrum in the 700 MHz band because of the high reserve price. This means that for the second time – the first time this band was put up for auction was in 2016 – there would be no takers for this band.

Reliance Jio needs to renew the biggest chunk of its spectrum – its 81.25 MHz in 800 MHz band, which is used for providing 4G services, is expiring later this year. So, it is sure to bid for enough spectrum in this band as it needs to have 10 MHz in every circle. In addition, it is likely to buy additional spectrum in 1800 MHz and 2300 MHz band in order to build a portfolio of 10 MHz and 40 MHz, respectively. With this strategy, Jio will end up expanding its 4G spectrum from the existing 23.4 MHz to 40.82 MHz – a 74.4% increase.

The company’s total outflow is likely to be Rs 57,790 crore at the reserve price. Since operators have the option of paying 25% of the total amount bid for spectrum below 1GHz like 800 MHz and 900 MHz, and 50% of the total amount bid for spectrum above 1GHz like 2,300 MHz, 2,500 MHz; its upfront payment could be around Rs 28,895 crore.

In the case of Bharti Airtel, a total of 57.60 MHz is expiring later this year, of which bulk 51.40 MHz is in 1800 MHz and 6.20 MHz is in the 900 MHz band. The company is likely to go for spectrum in 900 MHz to complete a block of 5/10 MHz in every circle. Also, it is likely to try to take additional spectrum in 1800 MHz (to complete 15 MHz), 2100 MHz (to complete 10 MHz), and 2300 MHz band (to complete 40 MHz). Its total outflow is likely to be Rs 25,000 crore at the reserve price and if its pays 50% of the amount upfront, its immediate outflow will be approximately `12,500 crore.

For Vodafone Idea, a total 51.05 MHz spectrum is expiring, of which again bulk of 51.05 MHz is in 1800 MHz while 6.20 MHz falls in the 900 MHz band. It is likely to opt for spectrum in 900 MHz to complete a block of 5 MHz in every circle. Also, it may try to take additional spectrum in 1800 (to complete 10 MHz), 2100 (to complete 10 MHz) and 2500 MHz band (to complete 20 MHz).

Its total outflow is thus likely to be Rs 3,500 crore at the reserve price. At the 50% upfront payment, its immediate outflow is likely to be approximately Rs 1,750 crore.