The country?s top three telecom operators ? Bharti Airtel, Vodafone and Idea Cellular ? are expected to enter into a slug-fest over the efficient 900 mega hertz (MHz) spectrum for the lucrative Delhi and Mumbai circles. The government will auction 900 MHz radiowaves, which can also be used to provide high revenue earning 3G data services, in January.
According to an IIFL research report, Bharti and Vodafone would want to retain their entire 16 MHz holding in the 900 MHz band (8 MHz each) in Delhi ?as they have a high incentive to ensure continuity of operations and to defend their 63% revenue market share.?
In Mumbai, IIFL believes, Idea?s ?hunger for 900 will be significantly higher?, since it has only 4.4 MHz of 1,800 MHz and no 3G spectrum putting a threat to its 9.6% revenue market share. Telecom operators are betting on 900 MHz band to offer 3G data services in Delhi and Mumbai metros, since spectrum in 1,800 band is not contiguous and 2100 MHz band is not up for sale immediately. With most 3G handsets supporting 900 band, bidders can start their 3G operations in 900 MHz.
In Delhi, Bharti, Vodafone, Reliance Communications and MTNL provide 3G services. If a third player gets 5 MHz in 900 and uses it for 3G services, it would significantly alter the competitive landscape. Hence, IIFL said that both Bharti and Vodafone ?would be willing to bid even at prices that would not make economic sense to a new entrant?.
The government is betting on this aggressive bidding for efficient 900 MHz band spectrum to earn over R40,000 crore from auction proceeds alone. In 2010, the government earned over R70,000 crore from sale of 3G spectrum in the 2,100 MHz band.
In Mumbai, IIFL expects Loop Telecom?s 8 MHz of 900 band to be taken up by a new winner. ?Of this, we expect Vodafone to bid for 2 MHz (in addition to retaining its current 8 MHz). This will leave a 5 MHz slot for another player?.
While Bharti, Idea and Reliance Jio are the top contenders for this 5 MHz spectrum, Reliance is unlikely to bid for it since it has other capex-light alternatives including sharing Reliance Communication?s spectrum (subject to regulatory permissions).
Bharti, on the other hand, already has 9.2 MHz of spectrum in 1,800 MHz band in Mumbai, of which 6.2 MHz is contiguous (which means it can be used to provide data services). It also has spectrum in 2,100 band for 3G and 2,300 4G radiowaves in Mumbai, so it may not be a contender for 3G spectrum in that metro.
In the 900 MHz band, the empowered group of minister on telecom approved auction base price as R359 crore for Delhi, R327 crore for Mumbai and R125 crore for Kolkata. These are 55% lower than the reserve price fixed for March 2013 auctions, which did not see any participation. While data usage among subscribers is going up, what is really cheering telcos is that a major chunk of the growth is coming from the high-end 3G technology.
Analysts said Idea Cellular?s 97% growth in net profit in the first quarter of the current financial year was largely due to 3G data revenue growth of 12-13%. Reliance Communications also showed 14% growth in data traffic on a quarterly basis, after it announced a plan dropping its 3G rates below 2G rates recently.