An Analysis of Indian Forthcoming Spectrum Auctions (Revised)

On 15th June 2019, I had written a note titled "An Analysis of Indian Forthcoming Spectrum Auctions". In this note, I intend to revise the above note in lieu of the current govt announcement of spectrum auctions.

Total Spectrum Offered

The total spectrum offered 2251.25 MHz. The band and circle wise breakup are as under.

In the above table, one can arrive at a total of 1856.25 MHz by adding all bands across all circles. This difference is due to the fact that the TDD spectrum of 2300 & 2500 has been halved to enable proper aggregation with the FDD bands of 700, 800, 900 & 2100 MHz.

Also, note that one can arrive at a Pan India number by taking a weighted average of circles proportional to their revenue weights (% revenue with respect to the total revenue of the industry). This value is indicated in the last column and is only 89.1 MHz for all bands put together.

Total Value of Offered Spectrum

The PIB note indicates a total valuation of spectrum offered at Rs. 3,92,332.70 crore (at reserve price). I tried to extrapolate the above number using the reserve recommended by TRAI. The calculated total comes out to be Rs 3,91,413/- crores (Rs 919.7 Cr less than what has been officially announced). This clearly indicates that DoT has made no further reduction in the TRAI recommended prices. The detailed circle and band wise break is listed below.

Note that 700 MHz is only 33.67% in quantum, but 50.34% in value.

Operator's Bidding Strategy.

The operators will bid based on their requirements so that they can leverage their existing spectrum to the maximum. I have done a detailed analysis regarding the same for each operator, and the results are listed as under.

RJIO

The following is the bidding dashboard for RJIO.

While ascertaining the bidding strategy of RJIO, I have assumed that RJIO will take enough spectrum in the 800 MHz (as its license is expiring) to complete 10 MHz in every circle. I have also assumed that it will take additional spectrum in 1800 MHz and 2300 MHz band in order to complete a 10 MHz (FDD) and 40 MHz (TDD) respectively.

With this strategy, RJIO will end up expanding its 4G spectrum from the existing 23.4 MHz to 40.82 MHz - a 74.4% increase. Its total outflow will be Rs 57,790 Cr at the reserve price. Assuming that only 25% is required to be paid (rest deferred), their immediate outflow will be approximately Rs 14,400 Cr.

Bharti

The following is the bidding dashboard for Bharti.

While ascertaining the bidding strategy of Bharti, I have assumed that Bharti will take enough spectrum in the 900 MHz to complete at a block of 5/10 MHz in every circle. Also, it will try to take additional spectrum in 1800 (to complete 15 MHz), 2100 (to complete 10 MHz), and 2300 MHz band (to complete 40 MHz TDD).

With this strategy, Bharti will end up expanding its 4G spectrum from the existing 31.6 MHz to 44.9 MHz - a 42% increase. Its total outflow will be Rs 34023 Cr at the reserve price. Assuming that only 25% is required to be paid (rest deferred), their immediate outflow will be approximately Rs 8,500 Cr.

Voda Idea

The following is the bidding dashboard for Voda Idea.

While ascertaining the bidding strategy of Voda Idea, I have assumed that it will take enough spectrum in the 900 MHz to complete at a block of 5 MHz in every circle. Also, it will try to take additional spectrum in 1800 (to complete 10 MHz), 2100 (to complete 10 MHz), and 2500 MHz band (to complete 20 MHz).

With this strategy, Voda Idea will end up expanding its 4G spectrum from the existing 39.1 MHz to 45.4 MHz - a 16.11% increase. Its total outflow will be Rs 17908 Cr at the reserve price. Assuming that only 25% is required to be paid (rest deferred), their immediate outflow will be approximately Rs 4,700 Cr.

Conclusion

Even at an optimal bidding level, the outflow of the industry will be approximately Rs 1,09,721 Cr at the reserve price. This means that by paying 28% of the total value, the operators can take 41.6% of the total spectrum offered. In order words, 72% of the value will get wasted and approximately 60% of the spectrum will remain unsold. This outcome is when the operators try to bid with a positive mindset to extract the maximum quantum of "useful spectrum" from the auction process. But give the financial situation on the ground the actual outcome might be even more depressed.

(Views expressed are of my own and do not reflect that of my employer)