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India's Auction Raises $9.8B, 700MHz Remains Unsold

Gagandeep Kaur

India's largest-ever spectrum auction has wrapped up after just five days with the government bagging only 657.8 billion Indian rupees ($9.8 billion), much less than the INR5.6 trillion ($83.9 billion) it had anticipated. Just 40% of the available spectrum was sold, with telcos showing zero interest in the premium 700MHz and 900MHz frequency bands.

Authorities had been trying to sell 2,354MHz of spectrum across the 700MHz, 800MHz, 900MHz, 1800MHz, 2100MHz and 2500MHz bands. Seven service providers -- Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Vodafone India , Idea Cellular Ltd. , Tata Teleservices Ltd. , Reliance Jio , Reliance Communications Ltd. and Aircel Ltd. -- took part in the sale.

Bharti Airtel, India's largest service provider, eventually acquired 173.8MHz spectrum in the 1800MHz, 2100MHz and 2300MHz bands for a total of INR142 billion ($2.12 billion), according to a statement issued by the company. It now claims to own 3G and 4G spectrum in all of India's circles (service areas).

The other big spenders included Vodafone, which ended up paying INR200 billion ($2.9 billion) for new licenses, and new entrant Reliance Jio, which picked up 269.2MHz in the 800MHz, 1800MHz and 2100MHz bands for INR136 billion ($2.03 billion).

"We have expanded our spectrum footprint thereby significantly enhancing capacity of our all-IP data strong network and ensuring world class services for all Indians," said Mukesh Ambani, the chairman of Reliance Industries Ltd. (RIL) , RJio's parent company. "RJio is committed to taking India to global digital leadership by bringing the power of data to all Indians."

The auction also proved critical for Idea, which spent INR127.9 billion ($1.9 billion) to acquire 349.2MHz (in the 800MHz, 2100MHz, 2300MHz and 2500MHz bands). Tata Teleservices, meanwhile, spent INR40 billion ($590 million) on licenses in Mumbai, where its existing concessions will soon expire, according to media reports. Aircel and RCom stumped up the remaining $400 million that was spent during the auction.

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While their spending strategies were markedly different, all auction participants ignored the 700MHz frequency band because of high reserve fees. Authorities had priced 700MHz spectrum at INR114.9 billion ($1.7 billion) per MHz on a pan-India basis, prompting vociferous complaints from the telcos. (See Is 700MHz Too Costly for India's Telcos? .)

"Three to four national operators with robust 700MHz-based broadband networks have the potential to accelerate India's progress to the top league of digitally enabled nations," said a press statement issued by Airtel. "Therefore, the pricing of the 700MHz band spectrum needs to be addressed on priority for the nation to benefit from the digital dividend arising out of this high quality spectrum band."

Experts believe that the high base prices were to blame for the rather muted response to the auction. "After 2012 and 2013, the 2016 telecom spectrum auction is the third instance of a tepid response by the industry largely owing to a high reserve prices," says Prashant Singhal, the global telecom leader for Ernst & Young. "With 60% of airwaves witnessing no bidding, the muted response is indicative of operators' reluctance to invest heavily at current market prices. The intent to increase the 4G play exists, but current valuations do not justify the expected rate of returns."

A surprising aspect of the auction was the interest that operators showed in 2500MHz spectrum, which sold across 20 circles. The high prices of airwaves in other bands may have driven telcos towards 2500MHz as an economic alternative.

– Gagandeep Kaur, contributing editor, special to Light Reading

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