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With the Government outlining the broad contours of the spectrum auction, telecom companies are readying their respective war chest for the bidding to be held in January.
While Bharti Airtel is looking to raise money by issuing bonds in the European market, Vodafone is pumping in Rs 7,000 crore from the kitty it will get post selling stake in the US venture.
Other players, including Loop Mobile, Videocon Telecom and Sistema Shyam, are also interested in buying spectrum. Loop Mobile, for example, is looking to sell equity stake to strategic investors, in a bid to raise funds.
While the Government plans to sell spectrum in the 1800 MHz and the 900 MHz band, it is the latter which is attracting interest.
Laws of physics
900 MHz is superior to the 1800 MHz band because laws of physics state that the higher you go on the frequency band, the lower will be the wavelength. Simply put signals sent out using higher frequency bands will travel lesser distance than signals sent on a lower frequency band.
This propagation characteristic also makes signals transmitted on 900 MHz more potent when it comes to indoor coverage. It has been proven that 900 MHz band has 30-40 per cent better coverage than 1800 MHz band.
A report from research firm Analysis Mason said the operators using 900 MHz spectrum will need to install 1,71,954 more base stations to match their existing coverage if they were to start using 1800 MHz spectrum.
This means that incumbent players such as Airtel, Vodafone and Idea Cellular will try to retain ownership of this spectrum band. Even for a smaller player such as Loop Mobile, which operates only in Mumbai, wants to buy spectrum in this band for offering 3G services
Hemant Joshi, Partner, Deloitte Haskins & Sells, said, “These auctions are unlikely to have same fate as the last auctions. There is likely to be reasonable demand for the spectrum considering the requirement of spectrum for provision of good quality services.”
In addition to incumbent operators, new players are also expected to bid. Reliance Jio for example could throw a spanner in the incumbent players’ strategy as it could use 900 MHz band to supplement its data service game plan.
Reliance Jio, which had bought spectrum in the 2300 MHz band, could find a lower frequency band more useful for ubiquitous data coverage.
Awaits more clarity
But telecom companies would be looking for more clarity on issues such as spectrum trading, mergers & acquisition norms and spectrum usage charges before finalising their bidding game plan.
“The new M&A norms would facilitate acquisition of smaller rivals. We expect meaningful consolidation in the bottom half of the market with only 2-3 of the 4th-8th operators surviving in the long run. Consolidation in bottom half of the market should impart sustainable pricing power to operators,” said Hitesh Shah, Senior Director Research, IT Services & Telecom, IDFC Securities.
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