India gearing up for 700MHz auctions despite pressure facing operators

India’s next spectrum auctions are set for a dramatic increase in the amount of available spectrum compared to last year’s round of bidding.

Regulator TRAI is aiming to hold a new auction for this fiscal year, in which 700MHz spectrum is expected to be available for the first time. This highly efficient frequency can be used to offer 4G services; across the country’s 22 telecom circles, 770MHz of spectrum in this band could be put to auction.

TRAI is reportedly considering auctioning as much as 2000MHz of spectrum in 7 different bands, which would make this latest round of bidding India’s largest ever. To fall within this fiscal year, the auctions will need to take place around March; this would mean that barely a year will have passed since the last round of bidding for spectrum.

Ratings agency Credit Suisse has warned that such a quick turnaround will place operators under significant financial pressure, claiming that it will adversely impact returns even if it is successful. The auctions stand to raise as much as $70 billion for the government; TRAI chairman RS Sharma has confirmed that the regulator will make its pricing recommendations by the end of the month, with officials claiming that “rational” pricing will be suggested in order to encourage further bidding.

India’s 2015 spectrum auctions saw 470MHz of spectrum across 4 frequency bands sold for a record INR1.1 trillion ($17.6 billion). Bids from the three largest operators constituted 85% of this total - a collective INR895 billion ($14.3 billion) – which has further driven up their already substantial levels of debt. Several Indian operators have called for the 700MHz auctions to be postponed for at least two years to allow the 4G user base to grow.

Bharti Airtel, Vodafone India and Idea Cellular are already under pressure to compete with newcomer Reliance Jio, which holds pan-Indian 4G spectrum and is aiming to begin its 4G offering imminently. Jio delayed its commercial 4G launch - originally scheduled for March – in order to extend its coverage to 90% of India’s population (its current coverage figure is around 70%).

Credit Suisse has noted that Bharti, Vodafone and Idea will all be obliged to bid in the auction, as otherwise they will lose their chance to obtain spectrum in premium bands. This would put them at a disadvantage to Jio, which holds 20MHz of 2.3GHz spectrum in all of India’s telecom circles plus 5-7MHz of 1.8GHz airwaves in a further 14 circles.

The agency noted that “this is likely to be the largest quantum of spectrum to be sold at once, with an estimated value of $60 billion to $70 billion”, and added that even if only 15-20% of the earmarked spectrum is sold, the $6B-$14B that this would cost operators would constitute a “financial burden that will lead to an immediate and further reduction in industry returns”.

Despite this, the Indian government is keen to hold the auctions as soon as possible, having set out its goal of raising INR428.6 billion ($6.4 billion) from communications – including spectrum and licence fees - within the current fiscal year. Speculation in the press that the auctions could slip into the next financial year has gained legitimacy following the telecom secretary Rakesh Garg’s comment that the auction would take place in May or June.

Ernst & Young’s Prashant Singhal said: “The government should first give a clear timeline of auctions for the next two to three years, including visibility on availability of spectrum bands, reserve prices and intervals, such that the industry can make their spectrum and technology bets with more clarity.”

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