The price of spectrum

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SummaryThe world economy will have a bumpy 2014. But the recovery is not, yet, at risk

At the end of day four of the 2G spectrum auction which saw 28 rounds, mobile operators jointly bid for around R52,700 mainly on the back of high demand for the more efficient 900 Mhz spectrum in Delhi, Mumbai and Kolkata. The demand for this spectrum is higher because it is in limited supply -- 16 Mhz each in Delhi and Mumbai and 14 Mhz in Kolkata. Bharti and Vodafone, hold this spectrum in Delhi, Vodafone and Loop in Mumbai and Bharti and Vodafone in Kolkata. These two players are fighting hard to retain this spectrum in the concerned circles while two players —Idea and Reliance Jio — are competing with them for this.

However, at the end of day four, the demand for this spectrum in the three circles is petering out with prices in Mumbai and Kolkata remaining the same between the third and the fourth day.

Since the auction design allows operators to get out of one circle and get into another, with prices reaching high in the three circles, the operators have shifted focus on the 1,800 Mhz band.

At the end of day four, participation in the 1,800 Mhz band saw Assam, Madhya Pradesh, UP (E), UP (W) and J&K circles getting higher demand than the spectrum blocks available in these circles. While the bid price at the end of day four for Assam was 79% higher than the reserve price, Bihar saw its bid price increase by 14% over the base price and Gujarat bids went 39% higher than reserve price. Other circles, including Delhi, J&K, Madhya Pradesh, Maharashtra, and UP (West) also saw the bid price at close of day four, exceeding the reserve price. In all other circles, the bid price remained at the base price level.

In May 2010, the government received R67,000 crore from the 3G auctions and the bidding went on for over a month. But this time around the government earned R52,000 crore in just four days. The outgo will put pressure on the telecom companies as it comes at a time when they were recovering from the intense price wars by increasing the realisable tariff. Since the additional cost on spectrum would not lead to revenue enhancement but would only go in protecting revenues, the companies would bleed.

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