More airwaves on offer for telcos: Why is it important now?

Telcos use spectrum auctions to shore up airwaves and expand network coverage; this year, however, it could be more about consolidation for the sector.

On 8 March, the Department of Telecommunications (DoT) announced an upcoming round of telecom spectrum auction. According to the DoT, the auction would “augment the existing telecom services and maintain continuity of services.” This announcement, in its own right, puts under the spotlight the rather different turnout that this year’s spectrum auction could see.

An analysis of the history of spectrum auctions in India, coupled with close observations of India’s three private telecom operators—Bharti Airtel, Reliance Jio Infocomm and Vodafone-Idea—reveal that the spectrum auction, slated to begin on 20 May, could see a considerably shallow showing from the telcos. A large part of this could be due to FY25 becoming a year of consolidation, instead of brute-force network expansion across India.

On this note, Voice&Data looks at what the upcoming spectrum auction could shape up to be like.

“We had a very major auction last year, where a large chunk of the spectrum was auctioned … the demand for a new auction is very limited for the new spectrum.”- Ashwini Vaishnaw, Union Minister, Communications and Electronics & IT, Government of India

Particulars of the auction

To begin, all spectrum available across eight bands—from 800MHz in the low-frequency range to 26GHz in the high-frequency range—will be auctioned by the central government. A total of 10523.15MHz of spectrum is set to be auctioned, with the DoT setting the total reserve price of the auction at Rs 96,317.65 crore (USD 11.6 billion).

To be sure, the auctioning of spectrum is key to the operating procedure of telecom operators in India. The central government, through the Ministry of Communications’ DoT, owns all spectrum in the country. Spectrum, specifically, refers to frequencies of airwaves that offer transmission of pockets of data wirelessly between the towers. Since transmission of information is a sensitive matter, government ownership and controlled access to applying companies is the only way for any entity to get access to Indian airwaves.

The upcoming auction will follow standard operating procedures, which include a 20-year spectrum issuance period, the ability for telcos to pay for the spectrum during the period, a capped interest rate for clarity and stability of payments for the spectrum, and no separate spectrum usage charges (SUC). Besides, there is no need to pay any bank guarantees to acquire the spectrum.

What does all of this mean?

Telcos need a wide range of spectrum for different purposes. For instance, the low-frequency spectrum has the highest range of transmission and thus needs fewer towers for signals to be relayed over large distances. However, high-frequency spectrum is key to facilitating higher data transfer bandwidth—which is a key aspect of providing 5G services.

Given the ability of low-frequency spectrum to maximise connectivity range and therefore offer cost-effective network distribution, the former is expected to be the most in-demand due to the technology.

A total of 10523.15MHz of spectrum is set to be auctioned, with the DoT setting the total reserve price at Rs 96,317.65 crore (USD 11.6 billion).

Past trends in play

It is important to note that each of the three key private telcos in India already have a spectrum for both 4G and 5G services—some more than others. No wonder that media reports have cited both analysts, as well as Union IT and Telecom Minister Ashwini Vaishnaw, to point out that the upcoming auction will draw limited participation from most telcos.

It is important to break this down further to understand why.

Speaking at an industry event in New Delhi in October last year, both Akash M Ambani, Chairman of Reliance Jio and Sunil Bharti Mittal, Chairman of Bharti Enterprises, said that the telcos will achieve near-pan-India 5G network coverage by the first quarter of the ongoing calendar year.

Kumar Mangalam Birla, Chairman of Vodafone-Idea shareholder Aditya Birla Group, added that the telco will roll out 5G services to its customers “soon.” The operator remains the only one of the three without any consumer 5G services—a factor that caused it to lose nearly 1.4 million subscribers of its network in December alone, as per data from the Telecom Regulatory Authority of India (TRAI).

However, the situation presently looks bleak for the cash-strapped operator, which in late February saw its board of directors approve a Rs 45,000 crore fundraising move—including Rs 20,000 crore in various equity instruments, and Rs 25,000 crore in loans.

Media reports have so far claimed that while investors are interested in Vodafone-Idea’s assets, a volatile market and lack of stability of the stock’s pricing remain concerns before investing. As a result, it remains to be seen if Vodafone-Idea gets its cash in hand to apply for the auction before the 22 April deadline, and from the 20 May start to the auction process.

All of these factors combine to mean that this upcoming spectrum auction would not be a big money spinner for the Centre. The government could be very well aware of this, as Vaishnaw appears to have hinted at.

Betting on the contrarian

While all of this is true, it is also important to note that additional telecom spectrum may not be a bad idea. Once the basic rollout of networks is complete, both Airtel and Jio would want additional spectrum to improve their services. Both the telcos are right now looking to increase their average revenue per user (ARPU), a factor that could lead to the procurement of at least some spectrum by the players.

If Vodafone-Idea’s fundraise goes through, the operator is also likely to pick up more 5G-oriented spectrum. Media reports also cited following the Union Budget this year that newcomers may join the spectrum bidding, including potential bids from international players, as well as the Adani Group.

While the auction in May might not match the full reserve value, a partial auction could still boost the government’s cash inflow, exceeding FY25 projections.

All of this could yet again shore up the total price and quantum of spectrum auctioned. This signifies the crucial role that the upcoming auction is set to play in the central government’s tax projections.

As a result, even though Airtel leads Jio in terms of the all-important ARPU metric, owning the additional spectrum that is now available without any SUC, could give it an extra edge. While matching the full spectrum reserve value may not occur, even a significantly partial auction, set to take place in May, could help the Centre earn close to or more in tax inflow from the telecom sector than projected in the annual interim Budget for FY25.

 By Vernika Awal

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