In the just-concluded spectrum auction, Bharti Airtel, Idea Cellular and Vodafone harnessed all their resources to maximise their footprint in the highly efficient 900MHz band.
Consequently, these operators bagged almost entire available spectrum in the band; Reliance Communications (RCom) was an exception, which won 5MHz spectrum in two circles. While Bharti won 5MHz or more in the 900MHz band in seven circles, Idea managed to secure it in all the nine circles where it was seeking renewal.
Tata Teleservices (TTSL), Reliance Jio (RJio) and RCom had trained their guns on the 800MHz spectrum, while 1800MHz spectrum attracted interest from all participants. Bharti added 2100 MHz spectrum in seven circles, taking total circles where it has 3G spectrum to 20, while Idea added one circle.
900MHz: Bharti, Idea and Vodafone have strengthened their spectrum holdings in the 900MHz band at RCom’s expense. RCom managed to renew spectrum in only two circles despite targeting six. It has, however, secured spectrum in 800MHz and 1800MHz for continuity of operations. Apart from seven circles where Bharti won 5MHz or more spectrum, it also added 1.2-2.2MHz in three circles. We believe incumbents will harness the 900MHz spectrum to deliver superior 3G/4G services.
2100MHz: The 2100MHz spectrum sale was also dominated by Bharti, Vodafone and Idea. Of the 14 circles where the spectrum was sold, Bharti bought spectrum in seven circles, Vodafone in six and Idea in one. In the 800MHz band, RJio secured 5MHz in nine circles and 3.75MHz in the UP (East) circle. While TTSL secured 1.25-3.75MHz spectrum in five circles, RCom secured 5MHz spectrum in two circles and 1.25-2.50MHz in nine circles. In the 1800MHz band, Bharti secured 5MHz or more spectrum in one circle, Idea in two, RJio in three, RCom in two and Aircel in one.
Auctions portend consolidation, data surge: While Bharti, Vodafone and Idea dominated 900MHz and 2100MHz spectrum auctions, RJio, RCom and TTSL were lead players in 800MHz. In our view, lower participation of smaller operators clearly portends consolidation in the industry. High competition from incumbents to garner as much spectrum footprint as possible also implies that the industry is eyeing high data growth and higher realisations as the industry consolidates. We believe, superior spectrum footprint imparts Bharti a distinct advantage. We have ‘Buy recommendations on Bharti and Idea.
Bharti—strong expansion in spectrum footprint: Bharti, while successfully managing renewal in all circles, also managed to get more spectrum than its current holding in almost all the circles. It also expanded its 900MHz footprint to Assam where it is not renewing the spectrum. It also bought 6.2MHz spectrum in the 1800MHz band in Odisha circle and 5MHz in 2100MHz in seven circles, taking the total number of circles where it can offer 3G to 20. With this expansion, the company will have by far the largest own 3G network, spanning 19 circles. Its total payout in this auction will be R291 bn. Bharti’s net debt post this stands at R961 bn, 2.7x and 2.6x FY16e and FY17e Ebitda, respectively.
Idea—renews spectrum successfully with some capacity addition: Idea, for which spectrum renewal was vital, managed to successfully renew spectrum in all the circles. The company bought 5-6MHz spectrum in all the circles, except for its important circles, such as Maharashtra and Madhya Pradesh, where it bought 9MHz and 7.4MHz, respectively. It also added 5MHz or more spectrum in 1800MHz in Tamil Nadu and Odisha circles. Idea bought 5MHz spectrum in 2100MHz band in Kolkata circle, taking its own 3G circle count to 12. The company’s total payout in the auction stands at R303 bn. Its net debt post this stands at R414 bn, 3.4x and 3.1x FY16e and FY17e Ebitda, respectively.