High spectrum prices in India's recent auction have tipped the scales in favor of the incumbents. Thanks to a process of passive consolidation over the last two years, Bharti Airtel, Vodafone India , Idea Cellular Ltd. and Reliance Communications Ltd. now collectively control nearly three quarters of the country's mobile market. The auction results will make it even harder for small players to survive.
Indeed, few were able to make their presence felt during the sale process. While Tata Teleservices Ltd. acquired 800MHz licenses in five circles (or service areas) and 1800MHz spectrum in two, Aircel picked up an 1800MHz concession covering a single circle. Uninor , on the other hand, was unable to procure any airwaves whatsoever, while Sistema Shyam TeleServices Ltd. skipped the auction entirely because of the high base prices. (See Idea, Airtel, Vodafone Splash Out on Indian Airwaves.)
Those fees raise concern about the long-term outlook for these companies. When their own spectrum comes up for renewal, they could -- after all -- be expected to shell out similar amounts to retain them. Meanwhile, having picked up new licenses in addition to renewing older ones, the incumbents have grown even stronger.
Where small players do continue to be relevant is at the regional level. Aircel Ltd. , for instance, serves more customers than any other operator in Tamil Nadu and is the second-biggest player in North East, while Uninor is number three in Uttar Pradesh (East), according to subscriber data from January 2015.
"It is fair to say that directionally the incumbents have become stronger on a pan-India basis post the auction," says Rohan Dhamija, the head of India and South Asia for market-research firm Analysys Mason. "But certain non-incumbents continue to remain strong in certain circles."
India's telecom sector would probably have witnessed formal consolidation a long time ago were it not for unfavorable regulations. One rule, for instance, demands that a merged entity pay the differential between the market-determined price and the administrative price for spectrum held by the acquired entity.
Bharti Airtel Ltd. (Mumbai: BHARTIARTL) was last year reported to be pursuing a takeover of an operator called Loop Telecom Pvt. Ltd. , but the deal eventually fell through. There were also reports of talks between Tata Teleservices and Uninor. Indeed, the fact that Telenor Group (Nasdaq: TELN)-backed Uninor did not procure any spectrum in the recent auction while Tata Teleservices won both 900MHz and 1800MHz licenses hints at some kind of understanding between the two players.
India's telecom minister has indicated that rules on spectrum trading and sharing will be made clearer soon. That should help to provide some impetus for consolidation.
— Gagandeep Kaur, contributing editor, special to Light Reading