the story So Far: India’s first auction of telecom spectrum in five years came to an end on Tuesday, with the government earning a revenue of Rs 15 77,815 crore from the exercise. Mukesh Ambani-led Reliance Jio has close to 60% of the spectrum purchased, followed by Bharti Airtel and Vodafone Idea. The price of spectrum for auction by the government was over 2,308 MHz (MHz) which was ₹ 3.92 lakh crore, and the bid successfully achieved 37% or 855.6 MHz. The auction lasted less than two days.
How has the industry been since the last auction?
A lot has changed in the industry in 2016, when the last auction took place. The participants then included Tata Teleservices, Idea Cellular, Reliance Jio, Bharti Airtel, Vodafone India, Reliance Communications and Aircel.
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Over the years, the industry has undergone a consolidation, resulting in now only three major players – Reliance Jio, Bharti Airtel and Vodafone Idea. An IIFL securities report suggested last December that Jio and Bharti Airtel are shaping the industry toward “a two-player structure”, increasing their market share. Vodafone Idea, on the other hand, is struggling financially.
In recent years, while the user base has grown larger, the industry itself has seen unexpected financial stress against it as an important court case. The reference is to a Supreme Court ruling of last September which ordered telecom players to share the revenue coming from non-telecom services with the government. It gave telecom companies 10 years to pay their adjusted gross revenue (AGR) dues to the government, with 10% payable by March 31, 2021. Vodafone Idea and Bharti Airtel were the most affected for this order.
Why was an auction needed now?
All three players were required to renew some of their spectrum as the legality was set to expire at the end of this year.
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Wasn’t it for the 5G rollout?
No. The auction is likely to take place later. In the auction held on March 1 and 2, the government offered spectrum for 4G in the following bands: 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz.
What do these bands stand for?
To explain this, we have to start with the term ‘spectrum’, which in this context, stands for the part of the electromagnetic wave boundary that is suitable for communication purposes. As it is a vast economic resource, which provides unimaginable benefits to any population, it is controlled by the government.
Industry organization GSMA, a body that represents the interests of mobile operators worldwide, states in its blog that one piece of this spectrum is not the same as another slice. The difference is in terms of the frequency of these waves (the number of times the waves repeat themselves in a second). It states, “Spectrum bands have different characteristics, and this makes them suitable for different purposes. In general, low-frequency transmissions can travel greater distances before they lose their integrity, and they can pass through dense objects more easily. However less data can be transmitted over these radio waves. High-frequency transmissions carry more data, but are poor at penetrating constraints. “
In this context, hertz is a measure of the number of bicycles per second, and 1 MHz is for 1 million hertz. Telecom providers cover their bases using both low and high frequency bands.
Who bought what at auction?
Reliance Jio was the largest lender in the auction. According to an Edelweiss report, it had over Rs 57,122 crore to acquire spectrum in the 800 MHz band. It spent the remaining 1,800 MHz and 2,300 MHz bands.
Bharti Airtel, which has a turnover of ₹ 18,699 crore, spent half its money on the 800 MHz and 900 MHz bands. It also spent on the 2,100 MHz and 2,300 MHz bands.
Vodafone Idea, the report states, “was the most conservative of the lot”. It used about two thirds Its. 1,993 crore spent on the 900 MHz band. It spent the remaining 1,800 MHz band. The spectrum will be assigned to bidders for a period of 20 years.
How do analysts view the auction strategy of these three companies?
Although the auction is largely seen as an opportunity to renew expiry spectrum, analysts say Reliance Jio’s “higher-than-expected” spending is an attempt to improve the network experience. The Edelweiss report says that Reliance Jio could go for it because “in recent quarters, Bharti Airtel has increased its disproportionate share of smartphone customers by leveraging its superior network”. Vodafone Idea’s less significant presence in the auction is linked to its balance-sheet constraints. It is also likely that players are conserving their resources for the upcoming 5G era.
Why did the 700 MHz band have no takers?
The 700 MHz band, in the form of 1,800 MHz, 2,100 MHz, and 2,300 MHz bands, appear to play an important role in 5G rollout (the fifth generation of mobile networks) that makes everyone look very fast and with very low latency. Also promises to add to). None of the takers of the 700 MHz band were expected to price its prohibitive floor. Some see it as an opening by the government to reduce the reserve price for future bids. The ICGI Securities report called the “king” in 5G, the C-band, which is the band between 3,300 MHz and 4,200 MHz, was not on offer at this round of the auction.
How did this auction compare to the previous round?
In 2016, around 40% of the 2,355 MHz spectrum (at a reserve price of about 5.6 lakh crore rupees) was sold, giving the government 89 65,789 crore in revenue. This time, the center has managed to get more.
According to Telecom Secretary Anshu Prakash, the government said that the revenue generated from the auction exceeded its expectations, which generated around 45,000 crore. Expectations were low due to the economic downturn caused by the COVID-19 epidemic and the fact that the top three telecom players were looking to end the spectrum and consolidate holdings in select bands.