5 things you need to know about the just-concluded telecom spectrum auction

The biggest-ever telecom spectrum auction concluded on Thursday, with the government getting bids for nearly Rs 66,789 crore, in what is now being called a tepid response to the airwaves, at best. 

The five-day telecom spectrum went underway on October 1, 2016, with the government putting up 2,354 MHz of spectrum up for sale across seven bands. While it expected to rake up nearly Rs 5.63 lakh crore at the base price, it received bids worth only Rs 66,789 crore. In the previous auction, telcos pledged Rs 1.1 lakh crore to pick up airwaves. 

Out of the 2,354 MHz on sale, bids were received only for about 964.80 MHz of spectrum. 

Seven telcos participated in the auction -- Reliance Jio, Vodafone, Idea Cellular, Tata Teleservices, Reliance Communications and Aircel -- which let them pick up airwaves that will be valid for 20 years. 

Here are five things you need to know from the telecom spectrum auction

1) Which bands were up for auction?

Airwaves across seven bands were up for sale -- 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz, and 2,500 MHz.

This is the first time that the 700 MHz band was put on sale but it was also priced with the most premium -- Rs 11,485 crore per unit. If the telcos picked up all the available spectrum in this band, then that alone could have fetched it Rs 4 lakh crore. However, that's not what happened. High price of the 700 MHz spectrum kept the telcos away, and the entire auction concluded without anyone bidding for this band. Even the 900 MHz did not find any takers. 

Ahead of the auction, experts were expecting telcos to dig into the spectrum bidding, to remain competitive amid a new player in the market, many were also expecting that the bidding would be moderate.

The first red flag was the Earnest Money Deposit (EMD), the amount committed by the telcos which indicates their strategy for the auction, which was deemed pretty low. Telcos pooled in a total of Rs 14,653 crore, with Reliance Jio topping the list at Rs 6,500 crore, followed by Vodafone at Rs 2,740 crore, Idea at Rs 2,000 crore, and Bharti Airtel at Rs 1,980 crore. Tata Teleservices paid an EMD of Rs 1,000 crore, while Reliance Communications and Aircel paid Rs 313 crore and Rs 12 crore, respectively. 

2) Where did the telcos bid? 

Bharti Airtel spent Rs 14,244 crore to acquire 173 MHz across the 1800 MHz, 2100 MHz and 2300 MHz bands. Idea Cellular spent Rs 12,798 crore for the 2100 Mhz band spectrum in the Mumbai circle.

A Reliance Jio official did not disclose the amount the company put in the auction but only said that "the government process is not yet complete," a PTI report said. Reliance is expected to have spent Rs 13,672 crore. Vodafone India emerged as the most aggressive, spending Rs 20,000 crore on airwaves, it added.

The 700 MHz and 900 MHz spectrum remained untouched because of the high reserve price set by the government. The Cellular Operators' Association Of India (COAI) said, "the financial strain on the industry and a high reserve price are the major reasons why the 700 MHz band did not attract bidders."

“We are hopeful the Government and the DoT will take cognizance of the role a high reserve price had on bidding, as far as the 700 MHz is concerned, and will recalibrate the price so that spectrum in the band could be put up for auction, maybe two years from now,” COAI Director General Rajan S Mathews said. 

3) How much did the government make?

The first day of the spectrum closed with bids worth Rs 53,531 crore; the telcos then tightened their purse strings. Day 2 and 3 ended with bids reaching Rs 56,972 crore and Rs 60,969 crore, respectively. On Day 4, added Rs 2,531 crore was added, and Day 5 ended with the total tally going up to Rs 65,789 crore, a fraction of the Rs 5.63 lakh that the government was expecting. Nearly 60% of the airwaves remain unsold this year. 

This was much lower than the bids worth Rs 1.1 lakh crore the government received last year.

The government will receive Rs 32,000 crore up-front which is just 50% of the Rs 64,000-crore budgeted for this year. According to the spectrum auction norms, the telcos were expected to pay 25% of the price up-front for for the 700 Mhz, 800 MHz and 900 MHz bands, and 50% for the remaining higher frequencies.

Even at Rs 32,000 crore, it was the highest in the last five years. Telecom Minister Manoj Sinha said that he was happy with the fact that the government will get the highest up front payment received in the last five years.

4) Why has the reception been low?

The telecom industry is debt ridden, with single digit growth at best. Companies have also been cautious about opting for low-price spectrum which would help them improve service quality and offer next generation services.

"The lack of enthusiasm was majorly due to its unrealistic pricing, high debt and single-digit growth that the industry is currently reeling under," COAI's Mathews said. 

Bidding activity took place largely around the 1800 MHz and 2300 MHz airwaves, which will help the telcos improve their 4G services. The companies also picked up the 2100 Mhz (3G/4G) band, 2500 Mhz (4G) band and 800 Mhz (2G/4G) bands. 

5) What will be the impact of this spectrum bid? 

Spectrum additions will significantly improve data network, subsequently driving the mobile commerce industry and increasing customers wants for more digital services. A top telecom executive was quoted by Economic Times saying that "Data speeds may shoot up by at least 40% as more data spectrum, typically, results in more throughput, which translates into faster speeds and greater capacity. Hence, a 4G user would be able to download movies or songs at faster speeds." 

However, COAI pointed out that "huge investments will be needed to roll out 4G services, which may be a challenge for an industry saddled with debts."