Takeaways for Centre from spectrum auction
Telecom spectrum was auctioned after a gap of five years, but it didn’t fetch a fortune.
Telecom spectrum was auctioned after a gap of five years, but it didn’t fetch a fortune. If spectrum across seven bands worth Rs 3.92 lakh crore was up for sale, only Rs 77,800 crore worth was sold. The government reasoned that the sum exceeded its expectations, but truth is, it amounts to 19% of the anticipated revenue and 37% of the spectrum on the block. Worse, there were no takers for the premium 700 MHz and 2500 MHz bands due to high reserve price. Unlike in the past, this round also saw only three bidders—Reliance Jio, Bharti Airtel and Vodafone Idea —which also partly explains why only a third of the total lot had buyers.
Analysts believe both Jio and Airtel, which bought spectrum in big chunks (Jio being the biggest bidder), will improve their network coverage and quality. Both announced their readiness for 5G, and their service will give one the edge over the other. Jio, which has only 4G subscribers, has flexibility and the latest auction further supports its ambition to pocket half of the customer base. But incumbents Airtel and Vodafone Idea have legacy 2G and 3G networks, and the switch to 4G and beyond is inevitable even if it means offering lucrative plans to retain subscribers. Currently, 4G plans gain more bang for the buck and since the penetration is about 50-55%, there’s plenty of room for operators to improve their average revenue per user.
But telcos’ high debt levels, which is expected to touch Rs 5 lakh crore by next March, could put a spoke in the wheel. Newer player Jio’s spectrum debt burden will shoot to $8.6 billion, 10% higher than Airtel’s $7.9 billion, while Vodafone’s $13 billion makes it the operator with the highest debt load. They also have unpaid statutory dues worth Rs 1.38 lakh crore, which could bleed players like Vodafone. In future, there’s plenty of spectrum to be sold and bought, but the government perhaps should reconsider selling it in limited amounts to ensure competitive pricing, besides pricing spectrum efficiently.