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Indian Telcos May Avoid Next Spectrum Auction

Gagandeep Kaur

India's regulator has recently published the rules for the country's next spectrum auction, but the high reserve prices could dissuade debt-ridden operators from taking part in it.

While there is no mention of an auction timeline in the rules, the spectrum on sale includes a whopping 7,462MHz of airwaves in frequency bands ranging from 700MHz right up to 3.6GHz.

If the entire spectrum were to sell at base pricing, it would generate more than $75 billion for the government. A major chunk would come from the sale of 700MHz airwaves, which remained unsold during the October 2016 auction because of high base prices. A spectrum auction two years earlier raised about $9.8 billion. (See India's Auction Raises $9.8B, 700MHz Remains Unsold.)

The government has priced 700MHz at 65.6 billion Indian rupees ($950 million) per MHz, a 42% reduction compared with prices in October 2016. A chunk of 800MHz spectrum is priced at INR46.7 billion ($670 million) per MHz, with 900MHz spectrum costing INR16.22 billion ($230 million) and 1800MHz available from INR32.85 billion ($470 million) per MHz. Authorities are charging per-MHz prices of INR16.18 billion ($235 million) for spectrum in the 2100MHz band, about 56% less than it cost during the last auction.

The 3.5GHz spectrum, meanwhile, is priced at just INR4.92 billion ($71.6 million) per 20MHz block. That compares with spending of about $2.7 billion on 280MHz of this spectrum during a recent auction in South Korea.

The next auction will mark the first time spectrum in the 3.3-3.6GHz range has been sold in India. Operators globally expect to use these airwaves to support forthcoming 5G technology. But with 5G standards yet to be completely finalized, India's regulator has refrained from attaching any rollout obligations to the spectrum. It will become eligible for spectrum trading after five years have passed, instead of the usual two. Authorities have also recommended capping spectrum holdings at 100MHz per bidder to avoid any monopolization.

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In spite of the drop in prices, compared with the last spectrum auction, the industry still believes base rates are on the high side. Service providers are also relatively spectrum-rich following a recent wave of consolidation. As a result, there is a risk operators will skip the auction.

The huge debts under which the industry is reeling could also dampen enthusiasm for an auction. Telcos including Vodafone India and Idea Cellular Ltd. (which are merging their operations) as well as Bharti Airtel Ltd. (Mumbai: BHARTIARTL) have been recording losses as a result of competition from disruptive new entrant Reliance Jio, the only profitable service provider in the market. Even RJio's profitability has been called into question by experts who note the different accounting practices the company uses.

If all that were not enough, the 5G ecosystem is still developing, and there are doubts about the business model behind the technology. There is a strong possibility some Indian telcos give the latest spectrum auction a miss.

— Gagandeep Kaur, contributing editor, special to Light Reading

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