All you wanted to know about: Spectrum auction

The auction for spectrum began today with eight bidders in the fray. This is the third round of auction being held in the last two years. But this is being touted as the biggest sale because the net value of airwaves being sold at base price is the highest with the Government expecting to garner Rs 82,000 crore.

WHO are bidding

Airtel, Vodafone. Idea Cellular, Reliance Jio, Tata Teleservices, Reliance Communications, Telenor and Aircel. There are no new players in the fray.

WHY is this auction crucial

The Government had given mobile licences for the first time in 1994-95 for a 20-year period. These licences are expiring this year. So incumbent operators - Airtel, Vodafone, Idea Cellular and RCom- have no choice but to buy back spectrum if they want to stay in business. If any operator fails to win back spectrum then they have to close operations. This had happened with Loop Mobile in Mumbai which could not buy back the spectrum. Loop had to shut operations and its subscribers migrated to other networks through Mobile Number Portability. Idea Cellular, for example, has to defend its spectrum in 9 circles. A player like Reliance Jio, which is looking for more spectrum could bid aggressive and knock-out competition.

WHAT are the legal issues

Incumbent operators have gone to court seeking an automatic right to extend their licences for another 10 years. They say that the licence has the provision for extension and they have offered to pay a suitable fee to the Government instead of having to face the uncertainty of bidding in an auction. Several cases have been filed in different high courts across the country. The Supreme Court has however directed that the auction results will be subject to its final decision on the operators' plea. The telecom companies have also questioned the need to pay revenue share when they are paying upfront money for spectrum. The revenue share was introduced in 1999 when telcos were allowed to migrate from an upfront fee. Telcos argue that paying the revenue share now is akin to having to pay rent for house they have bought.

HOW does the SC ruling impact the auction

There is no finality to the auction. The DoT cannot declares results or collect money from the winning bidders. This could mean that the auction money may not come in this fiscal, which will have an impact on the fiscal deficit. If the SC upholds the telecom operators stand, then the entire auction process will become redundant.

WHICH bands are being sold

Airwaves in 900 MHz, 1800 Mhz, 800 MHz and 2100 MHz are being sold. This is the first time so many spectrum bands are being sold simultaneously. Of this, 2100 MHz is useful for 3G service. 900 MHz is the most efficient in terms of propagation and device availability. It can be used for both 2G voice and 3G services. 800 MHz is useful for CDMA-based operators. 1800 MHz is currently used for 2G services but can be used for 4G going forward.

WILL there be any impact on tariff

Operators have said that the tariffs will rise by about 10 paise a minute because of the high price of spectrum. But going by the past experience spectrum price has never been the single most driving factor that drives tariffs. Most telcos are anyways in a mood to increase tariff to improve profitability.

WHO will be the biggest gainer

The Government will be the biggest gainer as it stand to get over Rs 80,000 crore. Other gainers will be clear after the auction is over.

CAN the bidding go to astronomical amounts ?

Since 1994, the telecom companies have gone through at least 5 rounds of auctions over the last 20 years. The round of first auction 1994 resulted in abnormal bidding with operators quoting high amounts because the players were new and overestimated the then market potential. The auction in 2010 for 3G spectrum saw high bids again because this was a new band for new technology and operators had to buy or lose valuations. The subsequent two rounds of auction in 2013 and 2014 were rather subdued. The ongoing auction can get aggressive bidding, especially for 900 Mhz and 2100 Mhz bands. The Government is selling only 5 MHz in the 2100 MHz band, which is enough for just one player. At least 3 players are interested in this spectrum. Similarly 900 MHz, being efficient and ideal for broadband services, could see high demand.

WILL telcos fall into a debt trap

Telecom companies are already under huge debt and an aggressive bidding will put more pressure on the balance sheet. Some of the gains in the last one year could get wiped out. The sector may see some consolidation post the auction. Telecom companies will also look to improve revenue generation by being more innovative with services like mobile banking, video entertainment. They will also put pressure on the regulator to formulate laws for collecting revenue from Internet players like Google and Facebook.

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