With Reliance Jio's entry, telcos to pick up 4G spectrum in upcoming auction

Reliance Jio announced the launch of its services for everyone from September 5 (Monday). Making the announcement, Reliance Industries' Chairman Mukesh Ambani said, "Reliance Jio is the only mobile network in the country that is only 4G LTE. This means that there is only 4G on the Jio network and not "mostly 2G, sometimes 3G, and once-in-a-while 4G."

While the industry expects that the Jio's entry into the Indian telecom market will push incumbent telcos to cut their tariffs or restructure their revenue model, the rivals are also expected to ramp up their 4G services thanks to the new player, by buying the corresponding spectrum at the upcoming spectrum auction. 

The latest round of spectrum auction is likely to take place on October 1. Touted as the biggest-ever spectrum auction, the government hopes to raise about Rs 5.63 lakh crore from the sale of the mobile airwaves.

A India Ratings' and Research (Ind-Ra) report by Tanu Sharma, Associate Director, said, "the launch of RJio will accelerate 4G adoption in India, backed by its attractive tariffs, low cost handset pricing and perceived superior quality of services driven by its huge investment in network."

After RJio's announcements on Thursday at the RIL annual shareholders' meet in Mumbai, Ind-Ra said, the agency expects the incumbents to incur high capex on network expansion and acquisition of spectrum to compete with RJio." 

Reliance Jio has already invested a pre-launch capex of Rs 1.5 lakh crore and boasts of 1.5 million customers in its "beta testing", much to the ire of incumbents and the Cellular Operators Association of India (COAI) of which, the Ambani-led telco is also a part. Ahead of its formal launch, Reliance Jio is already the second largest holder of spectrum in the country, behind only Bharti Airtel. While Airtel holds 770MHz across bands (900MHz, 1,800MHz, 2,100MHz and 2,300MHz), Reliance Jio holds 596MHz spectrum across 800MHz, 1,800MHz, and 2,300MHz bands and then followed by Vodafone (302MHz) and Idea (271MHz).

COAI Director General, Rajan S Mathews, in a recent interview with dna, also said that the telcos will be prompted to buy spectrum in the upcoming auction. "The serious players will have no choice but to acquire the spectrum so that they can ensure they have the adequate spectrum and the capacity to offer 3G and 4G to provide consistent services. Some of the operators will have to buy," he said. 

"There will be demand in the 1800hz, in the 2100hz, the 2300hz, and in some 800hz limited spectrum. We see robust demand because Jio enhances the stakes," he added. 

A recent Edelweiss report said that it expected Vodafone India and Idea Cellular to add more spectrum in the 1800Mhz band to enhance 4G spectrum holdings. 

Meanwhile, the high price of the 700Mhz spectrum is also likely to keep the telecom companies away from that spectrum and push them to buy the 1800Mhz instead. 

A Goldman Sachs report recently said, "...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."

Another India Ratings report had noted that the acquisition strategy in the upcoming spectrum will revolve around 4G. 

While the exchequer expects to raise a huge sum of money from the upcoming auction, the incumbents are expected to practice caution and be rational while bidding, keeping in mind the huge amounts of debt.