Two months after the government okayed spectrum trading guidelines, the first such deal took place on Tuesday with India’s third largest operator by revenues and subscribers, Idea Cellular, buying 5 MHz of contiguous spectrum in the 1800 MHz band from Videocon Telecommunications in the Gujarat and UP (West) circles for Rs 3,310 crore.
The development marks the beginning of consolidation in the sector wherein weaker operators with regional footprint sell their spectrum to bigger players.
The transaction is pegged at a 149% premium if calculated at the amount (R1,329 crore) Videocon bought the spectrum in these two circles in the November 2012 auction. Compared to the rates discovered in the March 2015 auction for this band of spectrum in these two circles (R1,669.75 crore), it is a premium of around 98%.
Apart from Videocon’s gain, the government will also get R463 crore, of which Videocon will pay R430 crore and Idea R33 crore. This is because as per the trading guidelines, the seller (Videocon here) needs to pay to the government licence fee and spectrum usage charge amounting to 13% of the amount received. Idea would have to pay a transactional charge to the government, which will be 1% of the transactional amount.
The gain for Idea is that it gets a solid spectrum bank in these two circles across different bands to offer 4G services, which it plans to do next year. For instance, though Idea has 5 MHz of spectrum in both 900 and 2100 MHz bands in the two circles, in 1800 MHz it had only 1.6 MHz in Gujarat and 2.2 MHz in UP (West). With the addition of 5 MHz of contiguous 1800 MHz spectrum in these two circles, its spectrum bank for offering 4G services will be complete.
“Idea intends to use this acquired spectrum for launch of 4G (LTE) mobile broadband services in the service areas of Gujarat and Uttar Pradesh (West). With this spectrum trading arrangement, Idea’s 4G (LTE) spectrum footprint will expand to 12 service areas covering over 75% of Idea’s current revenue and over 72% of existing 170 million quality subscribers on VLR,” Idea said in a statement. These 12 circles currently contribute 60% of the industry’s mobile revenues.
“After completion of this transaction, Idea would have full range of mobility services across 2G (GSM), 3G (HSPA) and 4G (LTE) technologies in all of its eight leadership markets of Maharashtra & Goa, Kerala, Andhra Pradesh & Telangana, Madhya Pradesh & Chhattisgarh, Haryana, Punjab, Gujarat and Uttar Pradesh (West),” the company said.
As per the latest Telecom Regulatory Authority of India Q2FY16 release in these eight circles, Idea’s combined revenue market share is 30.3% and subscriber market share (on VLR or visitor location register, a database) is 28.6%. “Idea is on track to launch its 4G services in 750 towns across existing 10 4G circles by first half of calendar year 2016, and after the completion of this transaction, plans to introduce 4G services in calendar year 2016 in Gujarat and Uttar Pradesh (West) circles,” the company said.
For Videocon Telecommunications, it means exiting from two of the six circles where it is present. The company said that after this it also plans to sell spectrum in low-scale operation circles of UP (East) and Bihar and is seeking a value of Rs 3,500 crore. The company had won spectrum in six circles — UP (East), UP (West), Bihar, Gujarat, MP and Haryana — in the 2012 auction for Rs 2,221.44 crore.
“UP (East), UP (West) and Bihar are our low-operation circles, and we were looking at exercising spectrum trading options. These three circles account for approximately 30% of the country’s population and have a low teledensity, hence very high potential,” Videocon Telecommunications director and CEO Arvind Bali said.