Spectrum auctions hasten India's telecom consolidation by one more step

Key takeaways from the recent spectrum auction in India

Mohammad Chowdhury
Updated: Mar 28, 2015 09:49:32 AM UTC
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India’s latest telecom spectrum auctions concluded this week with a record spend of INR 1.09 lakh crore (USD 17.7bn). This amount surpasses even the bonanza seen in the 3G and BWA auctions of 2010, and all auctions since. The sums spent also surpass the Government’s expectation before the auctions began. The biggest three players, Airtel, Vodafone and Idea, have spent significantly more on the auction than their share of market revenue. This points to a market being hastened more towards consolidation. I continue to expect a long term position where there will be 5-6 players nationally of which 3-4 will be heavy data players and 2-3 will be cost leaders in voice. This compares to some 8-10 operators per circle today.

Here are my main takeaways from the auction:

  • Top 3 have retained the best access to data growth - they secured and extended all their 900 MHz spectrum. These players spent 77% of the total auction proceeds against their 70% of revenue share: the premium paid reflects their focus to position for the best growth the market can offer.
  • Fierce bidding has pushed the smaller operators more towards the voice opportunity – none of the smaller players acquired prized spectrum bands and overall they spent 18% of the proceeds versus their 30% of market revenue share.
  • The spend pattern at this auction hastens consolidation by one more step as it makes the longevity of some players in the market more questionable – it seems we are still on course to a 5-6 player national market.
  • India is being primed for a major data uptake - 80mln smart phones are being sold per annum and operators (Vodafone and Airtel in particular) have been investing in better network coverage, quality and speed.
  • Idea is gradually building its high quality spectrum base: despite being the 3rd biggest player, it spent more than anyone else, strategically extending 900 MHz into its key circle Maharashtra
  • Tariff hikes may be needed: the record expenditure of USD 17.7bn may require tariff hikes to enable operators to sustain margins and/or maintain their debt levels.
  • The auction proceeds present a boon for the Government budget, but such bonanzas are unlikely to be repeated often and so from a fiscal perspective the gain should not be over emphasised.

Sources: Fitch; Economic Times; Medianama

The thoughts and opinions shared here are of the author.

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