1. Auction ends at Rs 1.1 lakh cr, to prove costly for telcos

Auction ends at Rs 1.1 lakh cr, to prove costly for telcos

Vodafone bids Rs 34,500 cr, Idea Rs 28,000 cr, Bharti Rs 27,500 cr and Reliance Jio Rs 11,000 cr

By: | New Delhi | Updated: March 26, 2015 8:16 AM
spectrum auction, spectrum auction 2015, spectrum auction India, spectrum auction news, spectrum auction price, vodafone, vodafone India, Idea, Airtel, Idea, Business news After a mammoth 115 rounds over 19 days, India’s telecom companies bid Rs 1,10,000 crore for spectrum across four bands. (Reuters)

After a mammoth 115 rounds over 19 days, India’s telecom companies bid Rs 1,10,000 crore for spectrum across four bands. That’s 1.79 times the reserve price for the country in the 800MHz band, 1.95 times in 900 MHz, 1.16 times in 1800 MHz and 1.05 times in the 2100 MHz band.

The fear of aggressive bidding was the reason why the telecom regulator was in favour of postponing the auctions till there was more spectrum available. Though the defence ministry had cleared 15 MHz of 2100 MHz spectrum for a swap, the government did not include it in the current auction, nor did it announce spectrum trading guidelines that would have reduced the auction pressure. While former telecom minister Kapil Sibal trashed the bidding process and called it flawed, it was his decision to not extend the 900 MHz licences that aggravated the demand-supply situation.

spectrum auction, spectrum auction bids, spectrum auction news, spectrum auction latest, telecom companies, telecom companies auction, telecom companies bid, bharti airtel, reliance communications, vodafone, idea cellularExact bid details will not be available till after the decision of the Supreme Court that is hearing a case on the auctions — the next hearing is later on Thursday — but estimates are Vodafone bid the highest at R34,500 crore, followed by Idea Cellular at R28,000 crore, Bharti Airtel R27,500 core, RJio R11,000 crore and RCom at R2,300 crore. Compared with its revenues, Idea bid the most aggressively as it had the most to lose.

Sources said Bharti Airtel, Vodafone and Idea managed to win back most of their licences in the 900 MHz band that were expiring. This was critical since Idea got close to 80% of its revenues from circles where the 900 MHz licences were expiring; the share was 55% for Vodafone and around 36-38% each for Bharti Airtel and RCom.

Not surprisingly, even before RJio entered the fray, competition in the 900 MHz band was fierce with more players in the fray than the number of spectrum slots available. Idea, for instance, didn’t have 900 MHz spectrum in Rajasthan and wanted to complete its pan-India presence in this band while Bharti and Vodafone had to retain their spectrum here — in other words, there were already three bidders for two spectrum slots in Rajasthan.

Meanwhile, a few days ago, RJio shifted over 3,000 of its bid points from the 800 MHz circles to 900 MHz in Rajasthan, UP East and UP West. Not surprisingly, the 900 MHz Rajasthan circle saw bids at 3.6 times the reserve price, and bidding went up to 4.3 times in UP West.

Once bids started rising in the 900 MHz band, the existing telcos decided to move the auction to the 800 MHz band where RJio was the main bidder. While the existing telcos were primarily interested in the 900 MHz band to begin with, technology allows them to offer data services wherever there are contiguous blocks of either 5 or 3.75 MHz in the 800 MHz band. As a result, there was aggressive bidding in Andhra Pradesh, Assam, Madhya Pradesh and Maharashtra — bids in Assam were 2.94 times the reserve price in the 800 MHz circle, 2.54 in Andhra Pradesh, 4.49 in Madhya Pradesh and 2.31 in Maharashtra.

With the auctions out of the way, the winners will now lick their wounds. While winners have to pay a fourth of the bid price within 10 days, as has been pointed out before, the industry simply does not earn enough to support the bids. With spectrum spends at roughly $47 billion so far, just servicing this — 10% interest costs and 5% amortisation — requires an Ebitda of over $7 billion compared with the current Ebitda of $6-6.5 billion. While that is affordable at the industry level, only the top three or four firms can possibly survive. That means the rest need to shut down, including the state-owned MTNL and BSNL that are bleeding even today.

Matters are far worse when it comes to overall profitability since the industry had invested around $45-50 billion of capex that also needs to be serviced.

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