1^st October, 2016, would be another day in telecom history when India would gear up to see one of the biggest spectrum auctions to date with about 2356 MHz of airwaves spanning across all seven spectrum bands—700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz, 2500 MHz, put up for sale, which is expected to make government richer by over INR 5, 00,000 Crore, if all the airwaves on the block get sold at the base price.

For quite long, spectrum has been the bone of contention between the government and the service providers owing to the lack of spectrum put for auction and that too at an exorbitantly high rates. Although the prices are still high, the upcoming auction would be an aberration with the large amount of spectrum put up for sale and going to make us spectrum-rich from a spectrum-deficit nation. A look back at the previous auctions shows that each spectrum auction was special in itself. Let’s start from 2010, when there were too many operators to participate in the bidding process but the government had put only 3-4 blocks per circle as against about 10 participants, leading to fierce competition. The years 2012 and 2013 got lukewarm response on account of high prices, and of course, cancellation of licenses by the Supreme Court–which led to a negative sentiment in the market. The same sentiment was carried forward in the year 2014, but the expiry of licences and the will to continue in the business helped in yielding some returns. 2015 was a bumper year for the government as renewal burden, ushering of 4G played their part, leading to windfall gains to the exchequer.

However, looking at 2016, the million-dollar question is –will this auction fill the government coffers as per expectations or there’s an elephant in the room? Unlike the previous auctions, this time the top telcos seemed to be cushioned with adequate amount of spectrum and no renewal burden on them. The consolidation taking place in the telecom industry, spectrum trading and sharing pacts, and the abundance supply of spectrum are some of the reasons warding off operators’ worry to add more airwaves to their kitties. Operators are not going to bid just for the sake of spiking up the spectrum prices, instead they would like to fork out monies to strengthen their network and backhaul, and for more technological advancements.

In fact, with price gouging by the government, telecom service providers are only going to fill their specific gaps in select spectrum-deficit circles. All these hint that the incumbents will cherry pick the less expensive and only required amount of spectrum. The efficient 700 MHz band may draw some attention, but again the only challenge is its high prices.

• Bharti Airtel – Country’s top operator by market share Bharti Airtel already has sufficient amount of 3G spectrum (except in Kerala) and 4G in most of the circles across the country with a combination of 1800 MHz (especially in Maharashtra) and 2300 MHz.  It is likely to bid for 700 MHz spectrum in select circles. Post its recent proactive spectrum trading pacts, it has pretty adequate spectrum to compete with RJio. Spectrum harmonisation and its recent spectrum trading deals with Videocon and Aircel have given a boost to its 4G coverage. Bharti might add 2300 MHz in two circles, 2100 MHz in select circles and shell out close to INR 50,000 Crore.
• Vodafone – Vodafone’s requirements are more inclined to 3G and it is in talks with Telenor for 1800 MHz spectrum, which indicates its preference for the fourth-generation services too. It may spend close to INR 120,000 Crore in this auction. Post RJio launch, it is likely to protect its RMS by aggressive bidding for 900 MHz, 1800 MHz and 2100 MHz of airwaves. The bidding for spectrum will be considered keeping many other factors into account such as forthcoming IPO, among other things.
• Idea – May not be willing to stretch its debts and flex financial muscles for acquiring spectrum, but in all probability it may complete its data footprint (except in Mumbai) with a combination of 2100 MHz and 1800 MHz. It may weigh the option of acquiring 1800 MHz for key revenue contributing circles like Gujarat, UP (West & East) and Bihar. And we can’t also stop ourselves from speculating that K. M Birla might look at exiting this market with decent valuation as well. It may invest close to INR 86,000 Crore as it has to add both 2100 MHz and 1800 MHz to increase its deeper coverage and capacity for 3G/4G footprint. Idea needs to ramp up its spectrum holding in circles such as Mumbai, Rajasthan and Bihar.  Not to ignore the fact that, in 2015 the company had made the highest investment for renewing its licenses, while restricting itself to mobile broadband airwaves. So, this seems to be an opportune time for Idea to add maximum to its kitty and ramp up its 4G presence. However, its debts remain the rider.
• RJio – Jio, on the other hand, has accumulated coverage spectrum (800MHz) through trading and sharing agreements with Reliance Communications.
• Others – Few operators like Tata Teleservices and Aircel are already unlocking their assets. After RCom-MTS deal consummation, RCom is set to merge its wireless business with Aircel. And hence, we can assume that they may not be the aggressive bidders in this auction.

So, it’s palpable that a significant amount of spectrum may remain unsold. Needless to say, the current environment is marked by declining voice tariffs and the telecom industry is grappling with the impact of Jio on its data pricing. In this scenario, incumbents are not likely to spend significantly for spectrum, especially when there is no scarcity and requirements as such; instead they may allocate their capital for network and backhaul purposes. While governments still hope a mega bonanza from this round of auction, we expect that we will surely move from a spectrum deficit scenario to a spectrum surfeit phase of telecom industry, which is a great situation to be in.