The battle for spectrum continued for the fifth day with the total bid amount reaching ₹54,600 crore. This 31 per cent higher than what the Government would have earned if it sold all available spectrum at reserve price.
The bid amount for 900 MHz band in Delhi and Kolkata crossed the money paid by the telecom companies for 3G spectrum in 2010. In the 1800 MHz band, bids for Delhi, Bihar and Assam have moved beyond the 3G price.
However, there are only 16 blocks of spectrum each in Delhi and Mumbai in the 900 MHz band. Each block is of one MHz spectrum. Any operator would need at least 5 MHz to do a meaningful business. So there is enough spectrum for only three players in the 900 MHz band. Intense bidding over that last four days has pushed up the price by 90 per cent in Delhi and 71 per cent in Mumbai making it expensive for most players in the fray.
Airtel and Vodafone 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 also be an 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 of the 900 MHz band and bid for 1800 MHz. For example, an operator could buy 10 MHz in the 1800 MHz band for much lower price than 5 MHz in 900 MHz.
Options 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.
While all this is good news for the Government, its bad news for consumers as telecom operators will pass on the higher cost of acquiring airwaves in the form of higher tariffs.