1. 1800 ‘Ideas’ from Videocon: Harmonize spectrum to get a higher price for it 

1800 ‘Ideas’ from Videocon: Harmonize spectrum to get a higher price for it 

Once the government allowed spectrum trading and sharing, it was only a matter of time before telcos started finalizing deals, though it is obvious that more agreements will happen once the spectrum caps are revised meaningfully.

By: | New Delhi | Published: November 25, 2015 8:55 PM
idea cellular

Idea has paid a premium of nearly 100% for Videocon’s spectrum in Gujarat and Uttar Pradesh (West) which it will use for providing its customers 4G services. (Reuters)

Once the government allowed spectrum trading and sharing, it was only a matter of time before telcos started finalizing deals, though it is obvious that more agreements will happen once the spectrum caps are revised meaningfully. Even so, the premium in the first deal, between Idea and Videocon, is stunning – compared to the price discovered for 1800MHz spectrum in auctions just 8 months ago, Idea has paid a premium of nearly 100% for Videocon’s spectrum in Gujarat and Uttar Pradesh (West) which it will use for providing its customers 4G services. That Idea should want to desperately shore up its data business is obvious, given how data revenues are already at around 18% of all revenues for the industry and could well cross the 40% mark in another 2-3 years – and with 4G services started by Idea’s rivals, it will lose customers unless it is able to offer these as well. While both circles are important ones – they contribute around 15% of Idea’s current revenue, and around 10% for the industry as a whole – till this deal took place, Idea didn’t have the spectrum to be able to offer 4G services. In UP (West), for instance, it had 5 MHz each of 900MHz and 2100MHz spectrum and 2.2 of 1800MHz – that would allow it to only offer voice services and 3G; with Videocon’s 5MHz of 1800MHz, however, it can now offer 4G services on the 7.2MHz it has in the 1800MHz band. The numbers for Gujarat are similar, though it had even less 1800MHz spectrum there before the Videocon tie-up.

As for why Idea paid nearly double the auction price, that’s a matter of demand and supply. Bharti Airtel has 6.2MHz of unliberalised 1800MHz spectrum and 5MHz of 2100MHz in Gujarat – that means it can do only voice and 3G data, not 4G. Vodafone has more spectrum than Bharti Airtel has, but it too does not have a contiguous chunk of 5MHz which is critical for offering data services. Which means, had Idea not signed up with Videocon, the latter could have hawked the spectrum to Bharti or Vodafone. A similar situation prevails, for instance, for Bihar where Videocon’s 5MHz of 1800 MHz spectrum is also on the block. In this circle, both Vodafone and Bharti Airtel need the spectrum for 4G – given that Bharti Airtel has nearly half of Bihar’s market, it would probably offer a higher price than Vodafone.

The big lesson here, of course, is for the government to hasten the process of harmonizing fragmented spectrum across the country. If spectrum is fragmented, it can be used, only for providing voice; providing spectrum for data requires at least 5MHz of spectrum and this has to be contiguous. Indeed, when the government talks of spectrum that has not been bought by telcos to conclude there is no shortage, this is incorrect – the reason why it has not been bought is that telcos want more high-cost spectrum for data, not voice. A look at the country’s spectrum map suggests another 214 MHz of 1800MHz spectrum can be harmonized into contiguous blocks and, based on the March auction price, fetch the government upwards of Rs 20,000 crore. This would include 9Mhz in Gujarat and 14.8MHz in UP (West) – which means, had the harmonisation happened, Idea could have bought the spectrum from the government, not Videocon. That’s a sobering thought since, like Videocon, other telcos are also trying to hawk their spectrum – if the government is not able to harmonise spectrum before that, the price it will get will be low.

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