Biggest-ever telecom spectrum auction may see muted response: Experts

Telecom analysts are predicting a tepid response to the biggest-ever spectrum auction, particularly in the prized 700 Mhz band, despite government's latest move to ease certain bidding norms to attract bidders.

The government hopes to raise as much as Rs 5.63 lakh crore from auction of mobile phone airwaves, slated to begin from September 29.

The telecom department issued a bid document on Monday, also called the Notice Inviting Applications (NIA) for auction of spectrum in 7 bands -- 700MHz, 800MHz, 900MHz, 1800MHz, 2100MHz, 2300MHz and 2500MHz bands.

It spelt out better terms including reduced equity lock-in period, quicker allocation of spectrum to successful bidders and easier roll out obligations, but tightened the upfront payment clause for spectrum above 1GHz (that is, 1800 Mhz, 2100 Mhz, 2300 Mhz and 2500 Mhz) to 50% as against 33% stipulated in the previous auctions.

"We do not expect meaningful participation in 700MHz spectrum band due to high reserve price and relatively nascent 4G ecosystem," Edelweiss said in its latest report.

Edelweiss further said the decision on 50% upfront payment for spectrum above 1GHz would "further burden the balance sheets of the companies which are looking to acquire spectrum, especially in the 1800MHz band".

Edelweiss expects Vodafone and Idea to add more spectrum in the 1800MHz band to enhance 4G spectrum holdings.

Deutsche Bank's report said it does not expect any sale of spectrum in the 700MHz due to its high price.

"Additionally, the new revenue share framework incentivises purchase of cheaper spectrum, hence we believe companies will purchase larger quantities of spectrum in the 2100/2300 MHz bands rather than allocate monies to 700Mhz," Deutsche Bank said.

A report by Bank of America Merrill Lynch anticipates "rational bidding" by telcos as companies are not bidding for any renewal spectrum, which had previously forced them to buy spectrum despite high auction price.

"Furthermore higher gearing (net debt/EBITDA of 3-5X for listed telcos), relatively slower data growth, expected investments in data and pressure on profitability will likely force telcos to be rational in bidding," Bank of America Merrill Lynch said.

It expects the total amount raised in the auction to be $3.5 billion (nearly Rs ​23,284.6 crore). "As the government is looking to raise $10 billion (nearly Rs 66,527.5 crore) from telcos in FY17, we see possibility of another auction in March of FY17 where DoT may auction the unsold spectrum (mainly 700/2500 Mhz) at a lower price," it said.

In a report issued on Tuesday on the upcoming spectrum auction, Goldman Sachs noted that one block of pan-India 700 MHz was available for $8.6 billion (nearly Rs ​57,213.65 crore), that is around four times the price of 1800 MHz.

"Given a number of contiguous blocks are available in 1800, we believe operators are more likely to bid for 1800.

Also existing rollout for most telcos is on 1800, with ecosystem around 700 still nascent," it said adding that bidding will stay muted and operators will look to fill gaps.

"The upcoming auction is crucial for Idea and Vodafone in our view, as they still have large amount of 3G/4G gaps, and will look to fill those. Bharti and Jio have very few circles without 3G/4G, and will try to bolster their data spectrum holding," it said.

Morgan Stanley said it believes that the 1800 MHz would see demand from Airtel, Idea, Vodafone and Rel Jio; 2100 MHz from Airtel, Idea, and Vodafone; and 800 MHz from RJio/RCOM.

"We do not expect the 700 MHz auction to be a success," it added.