Intensity of bidding in the ongoing spectrum auction is beginning to slow down as the bid amount inched closer to what operators paid for 3G spectrum in 2010 — ₹70,000 crore.

For example in Delhi, the bid stands at ₹639 crore for 1 MHz in the 900 MHz band. This is 96 per cent of the winning price for 3G. Bid for Mumbai is at ₹563 crore, which is 86 per cent of the amount paid for 3G spectrum.

At the end of day 4, a total of 28 rounds of bidding have been completed. The Government stand to get ₹52,664 crore if the bids were to end now. This is 26.6 per cent more than what the Government would have got if it sold all spectrum at reserve price. The price movement is being driven by bidding in the 900 MHz band.

Why auction not ending

There are 16 blocks of spectrum each in Delhi and Mumbai in the 900 MHz band. Each block being 1 MHz spectrum. Any operator would need at least 5 MHz to do a meaningful business. So there is enough spectrum for only three players. Airtel, Vodafone and Idea Cellular are incumbent players that own spectrum in 900 MHz at present but this expires in November 2014. Therefore, the only option for these players is to buy back spectrum through the auction.

The other option is to settle for 1800 MHz band but that could be expensive proposition given that it is an inefficient band compared to the 900 MHz band. On the other hand, there are new players such as Reliance Jio that are also interested in buying 900 MHz band.

Reliance Jio has spectrum in the 2300 MHz band and needs a lower frequency band to have a pan India footprint. So while there’s spectrum for only three players, the demand is from at least four operators. At some stage one of the incumbents will probably drop out. The decision will be based on what is more expensive and a tough one to make.

The operators will have to choose between having to buy 900 MHz at a high price and spending more to roll out additional base stations to meet the requirements of the 1800 MHz band. Either ways, the longer the auction goes on, the worse it becomes for incumbent telecom companies.

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