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Spectrum sale: Govt set to mop up Rs 1 lakh cr from auction

The government is set to surpass its budgetary target of R98,994.93 crore from the telecom sector in the current financial year, as the total proceeds from the spectrum auctions scheduled to begin from October 1 is set to touch around R1,50,280 crore, based on the earnest money deposits (EMDs) made by the country’s seven telecom operators (see chart).

By: | Updated: September 17, 2016 6:42 AM
Official sources said that companies can bid up to 10 times of their EMD, which takes Jio’s outgo to R65,000 crore — assuming that most of this bidding is in the 700 MHz band — it will have to make an upfront payment of R16,250 crore to the government. (Reuters)

Official sources said that companies can bid up to 10 times of their EMD, which takes Jio’s outgo to R65,000 crore — assuming that most of this bidding is in the 700 MHz band — it will have to make an upfront payment of R16,250 crore to the government. (Reuters)

The government is set to surpass its budgetary target of Rs 98,994.93 crore from the telecom sector in the current financial year, as the total proceeds from the spectrum auctions scheduled to begin from October 1 is set to touch around Rs 1,50,280 crore, based on the earnest money deposits (EMDs) made by the country’s seven telecom operators (see chart). Since operators are not supposed to make the total payment at one go but can opt for a deferred payment scheme (25% of the total proceeds in case of sub-1 GHz spectrum and 50% for above 1 GHz), the upfront payment they need to make to the government will be around Rs 58,865 crore. Add to this the Rs 25,000 crore that operators need to pay as annual revenue share licence fee and spectrum usage charge, and Rs 20,000 crore as the first instalment from the deferred payment of 2014 auction, and the total receipt for the government works out to Rs 103,865 crore.

spectrum-sale

The balance amount can be paid by the operators in 10 equal instalments after a two-year moratorium after the upfront payment is made. Going by the EMD, Reliance Jio comes out as the top prospective bidder, as it has deposited an amount of R6,500 crore.

Official sources said that companies can bid up to 10 times of their EMD, which takes Jio’s outgo to Rs 65,000 crore — assuming that most of this bidding is in the 700 MHz band — it will have to make an upfront payment of R16,250 crore to the government. Vodafone comes second with an EMD of Rs 2,745 crore, by which it can bid up to R27,450 crore. Idea’s total payout this way works out to Rs 20,500 crore, Bharti Airtel’s Rs 20,000 crore, Tata Teleservices’ Rs 13,000 crore, Reliance Communications’ Rs 3,130 crore and Aircel’s Rs 1,200 crore. The assumption for these companies is that most of their bidding will be in spectrum bands of more than 1 Ghz band like 1800, 2100 and 2300/2500 Mhz.

Going by the EMDs, only Jio seems to be capable of bidding for the 700 Mhz, which is priced at the most expensive rate of Rs 11,485 crore per MHz. To be capable to bid for it across pan-India an operator needs to submit an EMD of at least R5,500 crore. Operators other than Jio are likey to focus on buying spectrum in the bands of 800, 1800, 2100, 2300/2500 Mhz to enhance their spectrum holding to offer 4G services.

Currently, only Bharti and RJio have the capability to offer 4G services across the 22 circles, while Vodafone can provide it in only 9 circles and Idea in 11.

Going by the EMD, Vodafone is expected to pick up 20 MHz in the 2300/2500 MHz band in all the circles, as it currently does not have broadband wireless access (BWA) spectrum in any of the 22 circles. It may also plug its 3G gaps in the 2100 MHz band. In the 1800 MHz band, the company needs to acquire spectrum in AP, Bihar, HP, J&K, MP, Maharashtra, NE, Punjab, Rajasthan, UP (W) and WB, where it either does not have 1800 MHz spectrum or it is insufficient for providing 4G.

Similarly, in the case of Idea, it is expected that it will fill its 3G gaps in circles where it does not have spectrum in the 2100 MHz band, and pick up spectrum in the 1800 MHz band wherever possible. The company may not fill all its gap in the 3G space and thus within the same amount can acquire 1800 for 4G in more circles thus enhancing its 4G coverage to 20 out of 22 circles.

Bharti is likely to pick up additional 10 MHz in 2300 MHz band in the circles where the spectrum offered in this band is adjacent to its existing assignment (to avoid the risk of harmonisation). It may also pick up additional 20 MHz in 2300/2500 MHz band and 5 MHz in 2100 MHz band in all circles where it does not have any 3G/BWA spectrum. In 1800 MHz band, Bharti may pick spectrum in Maharashtra, J&K, and Assam, where it does not have 4G spectrum in this band.

RJio has picked up sufficient spectrum in the past auctions. It has also shared/traded spectrum in the 800 MHz band with RComm. Hence, it may pick up some spectrum in the 2300 MHz band to create a continuous block of 30 MHz. It may also plug some holes in the 1800 MHz band and is likely to pick up spectrum in 800 Mhz in some circles like Gujarat, Rajasthan, and UP (E). Since, these may not require an outflow of more than Rs 7,000 crore, it seems it is focusing on acquiring the 700 Mhz going by its high EMD.

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