Why is demand for Videocon's 4G Spectrum so high?

In 2012, Videocon acquired 2x5 MHz of 4G spectrum in 1800 MHz band in 6 of the 22 circles at a price of Rs 2,221 Cr. These 6 circles are  Bihar, Gujarat, Haryana, MP, UPE & UPW. Yesterday, Videocon announced their intent to sell spectrum in Gujarat and UPW to Idea at a total price of Rs 3310 Cr - which is 2.49 times of what they had paid in 2012 (Rs 1,329 Cr). The following picture captures the scenarios for Videocon trading its 4G spectrum with three key players (Bharti, Vodafone & Idea), thereby synthesizing the operator's demand for Videocon's 4G spectrum and possible alternatives.

The topmost part of the picture lays out the RMS (Revenue Market Share) of operators in these 6 circles. The middle part of the picture has been segmented into three blocks listing the spectrum inventory of Bharti, Vodafone & Idea in the respective bands (900/1800/2100/2300 MHz). The spectrum inventories of operators are color coded to indicate its capability to roll out 2G, 3G or 4G (with advanced technologies marked with darker shades of brown). The next part of the picture indicates the possibility of finding additional contiguous spectrum in 1800 MHz band once the harmonization process is over (read my earlier note: The Story of 1800 MHz band: The Past, Present & Future). This part also list the availability of 4G spectrum in 2300 MHz with Aircel and Tikona. The lowest part of the picture indicates the current market price of 1800 MHz band in Rs Cr/ MHz and compares it with what Videocon paid in 2012. 

One can clearly see that Bharti and Idea have the capability to roll out 4G in only two (Haryana and MP) of these six circles where Videocon has 5 MHz of 4G spectrum in 1800 MHz band. This due to the fact they (Bharti, Vodafone & Idea) need some spectrum to offer GSM services or their spectrum being fragmented and therefore not suitable for 4G. Hence, if an operator has to get 4G spectrum in these circles in 1800 MHz band they have no other option but to buy it from Videocon - unless DoT completes the harmonization process of 1800 MHz band and releases additional spectrum through fresh auctions. Once the harmonization process is completed additional 5 MHz slots can be released - 3 in Bihar, 1 in Gujarat, 1 in Haryana, 1 in UPE and 2 in UPW. Also, 4G spectrum in 2300 MHz band can be acquired in Bihar, Gujarat, UPE, and UPW from Aircel and Tikona provided they are interested in selling.

One can see that in Gujarat and UPE Idea's RMS is 20% (Rank 2) and 31% (Rank 1) respectively. This could be the reason for Idea securing themselves in these two circles, as the risk of them facing fresh auction could be very high due to huge uncertainty in availability of 4G spectrum in these circles.   

Hence, the spectrum of Videocon will also be in great demand especially in Bihar and UPE where all the three market leaders do not have the ability to offer 4G services - unless DoT provides a clear roadmap to offer fresh spectrum in 1800/2100/2300 MHz  band or Tikona and Aircel decide to sell their existing 2300 MHz spectrum.  

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