Telecom industry fears expensive auction as Centre squeezes 3G spectrum supply

The telecom industry on Tuesday expressed fear that the upcoming auction in February could lead to over-bidding with the Centre deciding to put only 5 MHz of third generation spectrum on the block. Even though the telecom regular had clearly indicated that the defence was willing to give up 15 MHz of 3G spectrum, the operators will have to fight it out for the 5 MHz on offer.

Insufficient bandwidth “This is going to be a repeat of 2010 when the Centre had squeezed the supply of 3G spectrum which led to high bidding. Operators that won spectrum then are still dealing with the debt raised at that time to pay for the spectrum,” said a Mumbai-based mobile operator. If the government had sold the entire 20 MHz it would have enabled four players to get 3G spectrum.

Risky move But now there is enough bandwidth only for one player. The government on its part has said that the decision to sell only one block of 5 MHz was driven by the twin objective of revenue maximisation and to prevent hoarding. However, some analysts said that the move could boomerang.

“On one hand the government wants to push for Digital India and broadband services. On the other hand it is not willing to sell all the bandwidth it has. This is worrying,” said another operator.

The top three operators – Idea Cellular, Bharti Airtel and Vodafone India – whose licenses in certain circles have expired or are coming up for renewal, would be looking to bid during the forthcoming auctions.

Avoiding disruption This would be mainly to avoid disruption in services. Hemant Joshi, Partner, Deloitte Haskins & Sells said, “On the 3G front, the companies will bid aggressively to garner as much as spectrum as possible to enable them continue offering services. The flipside is that the operators will have to leverage their balance sheets while there will be much pressure on their cash flow and profitability.”

Many of these companies would also be looking at securing 3G spectrum as none of them has pan-India 3G spectrum. At present, these companies are providing 3G services through intra-circle roaming (ICR), and own spectrum would help the companies better position their services and have a control on costs.

Impact on finances Reliance Jio Infocomm would also look at 3G spectrum as it would need it as a fallback spectrum for the 4G and BWA operations.

Companies such as RCom and others, whose licenses across certain circles are set to expire, would also look at additional spectrum. “This time it’s going to be a big auction, and ultimately it would have an impact on operators’ debt position, while their bottom line would also be impacted,” said Rishi Tejpal Singh, Principal Research Analyst, Gartner.