The proposed spectrum auction on January 23 will force telecom operators such as Bharti Airtel, Vodafone India and Idea Cellular to spend more towards capital spending (Capex).
However, this will be good news for telecom vendors such as Huawei, ZTE, Alcatel-Lucent, Cisco, NSN, Ericsson, etc. In the last two years, these vendors could not meet their target revenues in India due to regulatory issues and less Capex by mobile operators.
As the incumbent telecoms holding 900 MHz of spectrum will be allowed to bid for maximum of 5 MHz in that band as against their current holding 6.2 MHz to 8 MHz, they will have to acquire remaining spectrum in the 1800 MHz range. These telecoms would need to change some of the 900 MHz based Base Transceiver Stations (BTS) to 1800 MHz based BTS.
Spectrum in 1800 MHz range is less efficient as compared to that in 900 MHz range in terms of propagation characteristics and requires additional BTS to provide similar coverage. Based on the additional BTS roll-out, incumbent players are expected to incur Capex of Rs 939 million, Rs 521 Million and Rs 467 million per MHz for switching from 900 MHz to 1800 MHz in Delhi, Mumbai and Kolkata circles respectively, Care Research said.
The Indian telecom industry is expecting good response from mobile service providers because the incumbent operators — Bharti Airtel, Vodafone, Loop, Idea etc — whose licenses are going to expire over next few years have to participate in the auction to acquire the spectrum.
The government has fixed the pan-India price in the 1800 MHz band at Rs 17.65 billion per MHz, as against Rs 14.96 billion suggested by TRAI. This price is around 26 percent lower than the reserve price in March 2013 auction price of Rs. 23.78 billion but remains 18 percent higher than the price suggested by the TRAI in September 2013.
A total of 403.2 MHz of spectrum will be auctioned in the 1800 MHz band in the January 2014. 4 January is the last date for applying.
The amount of spectrum is expected to generate approximately Rs 360 billion valued at reserve price approved by EGoM, Care Research said.
Removal of reservation for incumbents who already hold the spectrum is slightly negative whereas a cap of 5 MHz for 900 MHz spectrum would act as a dampener for the incumbent players.
Even if the existing holders of the spectrum go for maximum spectrum they can bid for, there would 6 MHz, 6 MHz and 4 MHz spectrum remaining in Delhi, Mumbai and Kolkata circles respectively. Telecoms such as Videocon Telecom, Reliance Communications and Reliance Jio Infocomm may be participating in the auction.
