Spectrum Auctions in 2015

Bids in the February 2015 spectrum auction are likely to skyrocket as the department of telecommunications (DoT) plans to auction just 800/900/1800 MHz spectrum bands, and not the vital 2100 MHz band spectrum that telcos were hoping for. Auctions for spectrum in the 2100 MHz band will take place only in May, and with no certainty about how much 2100 MHz spectrum would be available in the May auction, telcos will have no option but to bid very aggressively to retain their 900 MHz spectrum in February.

The crux of the problem is that while in February 2014 roughly 90% of the spectrum auctioned was brand new, things will be the exact opposite in the February 2015 auction when just 10-15% of the spectrum will be new. A good example of what this will do in Maharashtra, to take one example, is that Vodafone could well see its business shut down in the state. Right now, Vodafone has 6.2 MHz of spectrum in the 900 MHz frequency band where its licence is running out later this year. If it is not able to win this back in the auction, its only fallback is 1800 MHz spectrum. But it has only 1.25 MHz of this spectrum and only another 2 MHz is available for auction. So Vodafone will bid whatever it takes for it to retain the 900 MHz spectrum, but it requires just one other telco to take the price higher and higher. Such examples can be multiplied manifold across various other telcos as well as licence circles.

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Department of Telecom will start the biggest ever auction of 2G and 3G spectrum on Wednesday wherein 8 firms will bid to acquire radiowaves in four bands, which may fetch the government over Rs.82,000 crore.
The government plans to sell 380.75 MHz of spectrum in three bands—the premium 900 MHz band, 1800 MHz and 800 MHz, besides 5 Mhz in the 2100 Mhz band across 17 out of 22 telecom areas in the country.

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The fear among investors is that the companies' balance sheets may now be under pressure.

The government had raised a record Rs 1.07 trillion ($17.07 billion) by the end of bidding on Tuesday in an auction that began on March 4. That's almost a third more than what the government had forecast for the entire duration of the auction, which is set to end this week.

For the government, the money raised will help plug the fiscal deficit. For India's wireless carriers, the auction is the only way to renew expiring 20-year leases and build the extra capacity needed ahead of an anticipated surge in mobile data consumption as more Indians use mobile phones to go online.

Idea, for instance, is expected to hold on to 900 Mhz spectrum in nine regions which account for 72 per cent of its revenue. But analysts estimate that to renew all its licenses it will have to spend close to Rs 300 billion ($4.8 billion).

The company's net debt stood at $1.77 billion at end 2014 and is expected to rise to about $3.08 billion in the year ending in March 2016, according to Thomson Reuters data.

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