700 MHz auction will be a blow to Mukesh Ambani

Rolling out networks on the 700 MHz spectrum for wireless broadband will cost half of what it does in the 2.3 GHz spectrum, which was won by Mukesh Ambani firm Infotel Broadband Services, and Qualcomm Inc, last year.

The government plans to auction the 700 MHz spectrum soon, according to reports.

The 700MHz band is ideal for providing wireless broadband in rural areas with lesser population density as it has better propagation capabilities.

Due to lower frequency range, base stations can cover larger areas compared to other frequencies like 1.8 GHz or the 2.1GHz currently used by telecom operators.

“Compared with the 2.3 GHz broadband wireless access (BWA) spectrum auctioned earlier, the 700 MHz would mean cost savings of at least 50% or more in initial capex for basic network infrastructure as you require lesser number of cell cites,” said Kunal Bajaj, partner and India director at telecom advisory Analysis Mason.

“Operators in that band will have an advantage over the current BWA winners.”

Analysts at investment advisory, HSBC, also share this view and thinks the auction could be a po tential negative for Infotel.

“This (auction of 700 MHz) may be negative for BWA players, in particular RIL, which paid $2.8 billion to obtain pan-India BWA spectrum,” Rajiv Sharma, Tucker Grinnam and Harbhajan Singh, analysts with HSBC Global Research, wrote to clients on March 3.

“We believe capex for BWA players will be higher versus those which provide wireless broadband in the 700 MHz band.”

Recently, in an investor analyst conference hosted by Bank of America-Merrill Lynch, RIL indicated that it plans to invest about $4.5 billion in telecom sector over the next five years.

In the May auction of 2.3GHz spectrum for wireless broadband services, Infotel, later bought out by Mukesh Ambani’s Reliance Industries Ltd, paid about $2.8 billion for a pan-India spectrum and licence.    

To be sure, India’s department of telecommunications has many hurdles to cross before it can auction the 700 MHz spectrum as it is currently occupied by state broadcaster Doordarshan as well as the defence forces.    

However, industry analysts speculate that government may go in for the auctions as it is under pressure to reduce the fiscal deficit by any additional source of revenue available.

Last year government earned nearly $24 billion by auctioning spectrum for 3G and wireless broadband services.

“Given the good propagation characteristics of the 700 MHz band, we believe the government could raise at least $12.8 billion (1.5 times of proceeds from BWA spectrum auctions) if the auction happens in 2-3 years time,” HSBC’s Sharma, Grinnam and Singh wrote.

Due to the spectrum efficiency, the 700 MHz is the preferred band for 4G services in countries such as United States.

Similarly, telecom operators’ body, GSM Association is currently trying to get regulators in Europe to make the 700 MHz spectrum available for wireless use.