The next round of spectrum auctions is set to witness a lukewarm response from telecom companies, potentially denting the government’s non-tax revenue for the fiscal. This is despite the Telecom Regulatory Authority of India (Trai) earlier this month recommending the reserve price for the auctions and advising the government not to delay the auction process.
One of the reasons for the possible tepid bidding is that barring the premium 4G 700 MHz and the 5G spectrum in the 3300-3600 MHz band, operators have sufficient spectrum holding bought in previous auctions and also through acquisition of smaller operators.
Since the number of players in the industry has also come down, the scarcity of spectrum is no longer there, which means that there’s enough left for everyone. As regards 700 MHz and 3300-3600 MHz, the eco-system is yet to be fully developed so these cannot be deployed immediately.
Further, currently operators are in the process of rolling out their 4G networks on the spectrum they hold. Even for Jio, which has put into use all its spectrum, the utilisation level is only 20% so the company is hardly in need to acquire more.
Top operators have significantly improved their spectrum footprint via bidding in the prior auctions and acquisition of smaller operators, and they are still in the process of rolling out 4G networks on the existing spectrum.
“Participation in auctions may happen once the ecosystem matures and network capacity constraints on the existing spectrum start becoming visible. In our view, that is some time away,” analysts at brokerage Morgan Stanley wrote in their report.
The balance sheet leverage of the operators remains elevated and this will also be a major cause for going slow in further acquisition of spectrum through auctions. While the Trai may have reduced the reserve price by 43% for 700 MHz compared to the 2016 levels, it’s still on the higher side. At Rs 6,568 crore per MHz, operators will have to shell out Rs 32,840 crore for a pan-India 5 MHz.
For the 5G band in the 3300-3600 MHz, where the prices have been given for the first time, at Rs 492 crore per MHz, for a pan-India minimum block of 20 MHz, operators will have to shell out Rs 9,840 crore, which is seen as steep.
“Industry revenue and profitability has worsened significantly post previous auction which is not reflecting in the spectrum price recommended by Trai, in our view. Incumbents are yet to deploy some of their existing spectrum and we see minimal demand from them in the medium term,” BNP Paribas noted in its report. “Spectrum in India has decisively turned into a buyer’s market and operators are likely to acquire spectrum only as and when they need it; they are likely to be selective based on their needs rather than accumulate spectrum,” it added.
According to a Crisil research report, the industry’s adjusted gross revenues could decline another 6-8% on-year this fiscal owing to a continued deterioration in realisation from data sales. “The corrosive effect of competition will see gross revenue of the top three incumbents — Bharti Airtel, Idea Cellular and Vodafone India — plunge 14-16% as they focus on retaining the subscriber market share,” Crisil noted in its report.
Though individual operators have not officially commented so far on the reserve price or the timing of auctions, their industry body, Cellular Operators Association of India (COAI) has issued a statement, which underlines its lukewarm response towards it. “We are glad that the government has decided to bring down the price of spectrum, especially in the 700 MHz band. It is, however, important to note that considering the current financial stress the industry is going through, lowering the spectrum price alone doesn’t fix anything. Unless the spectrum usage charges, licence fees and other levies are lowered as well, the industry may not be able to cope with the technologies required to roll out 5G,” Rajan S Mathews, DG, COAI said.