With the government approving spectrum trading and spectrum sharing policies, the country’s telcos finally have other avenues to acquire the much needed radiowaves outside of the auction mechanism—a move expected to significantly improve the quality of services as well as the financial health of the sector.
So far the only way a company could get more spectrum was by bidding for it in an auction that the government conducts.
The problem with that system has been long waits for the telcos for significant chunks of airwaves to be up for grabs—either because a current holder’s lease on it expired (licences typically last 20 years after which that spectrum is auctioned afresh) or because the government refarmed the bands and made available unused (and unsold) bits and pieces.
Thanks to the change in these two policies, telecom operators can now beef up their holdings to offer better, and new, services. One band that nearly all operators are likely to want more of is 1800MHz—that’s the band on which they can offer both 2G and 4G (FD-LTE) services.
That apart, these companies may also go after individual bands in specific circles and fill up the gaps in their current basket, across technologies and circles. (2G technology allows basic voice services, and the subsequent 3G- and 4G-based technologies allow for increased data capacity and speeds.)
For instance, Bharti Airtel Ltd, India’s largest telco by subscribers, revenue and total spectrum holding, could get the 2300MHz in circles where it does not have the airwaves to offer 4G (TD-LTE) based wireless data services. Bharti has a block (20Mhz) of 2300Mhz in nine circles, compared to Reliance Jio Infocomm Ltd that holds 20Mhz of that band in all 22 circles.
In key markets like Gujarat and Western Uttar Pradesh, the telco has no 2300Mhz or 900Mhz spectrum, while in the Kerala and Punjab circles, the telco has no 3G (2100Mhz) spectrum. However, Bharti could run the risk of hitting the spectrum cap limits for cumulative holdings across the country, if it does acquire the necessary spectrum in all these bands.
Telcos like Vodafone India Ltd and Idea Cellular Ltd are mainly focused on 3G services, and analysts expect them to increase their spectrum holding in the 2100Mhz band, either via the next auction or by pooling resources (sharing) with each other and Bharti. The 3G based services are fast becoming the minimum norm of data services across the country, making it increasingly important to be available in every circle.
Vodafone has the necessary 2100Mhz spectrum in 15 circles while Idea has it in 11 circles. The government is expected to auction 15Mhz of 3G spectrum across most parts of the country next year.
If Mukesh Ambani-promoted Reliance Jio offers voice services along with 4G data, it would need additional 1800Mhz spectrum. This is expected to come from Reliance Communications Ltd (R-Com), controlled by his brother Anil Ambani. Additionally, Jio would also need the 850MHz band spectrum from R-Com to make its expected data-centric services more efficient as voice over LTE services are considered highly spectrum-inefficient.
R-Com’s right to use its mainstay 800Mhz band spectrum is due to start expiring in 2021, just six years from now, potentially reducing its appeal to possible sharers. RComm has also announced it is in talks with Sistema Shyam Teleservices (that runs the MTS brand in nine circles). This is mainly to ensure business continuity for the company that failed to get replacement spectrum in the last auction. Another option for R-Com to get access to the 800Mhz band is via a share deal with Jio, which has that spectrum in that band in 10 circles that do not overlap with MTS.
On the other end of the equation are telcos like Aircel and Videocon that are the potential net sellers of spectrum, due to their significant quantum of unused capacity (have the spectrum but not enough number of customers to use it all up), as well as weaker balance sheets. This, however, does not mean that they will trade all their spectrum, but could sell bits and pieces, depending on the needs of the buyer. Net sellers are called so due to their need for additional funding to remain viable in the highly competitive Indian telecom sector.
Aircel could also enter the mix with its 2300Mhz spectrum in eight circles and 3G spectrum (2100Mhz) in 13 circles, either by selling or sharing. Analysts do not expect the telco to be a net buyer. Videocon is also expected to be a net seller of its 1800Mhz spectrum in six circles with efficiencies in combining with all the four major operators. Uninor is expected to be a net acquirer.
There are, however, some challenges to sharing and trading, albeit minor. These include the fact that the spectrum in question needs to be liberalized (meaning, the market price is paid to the government and the telco is not restricted from deploying any technology it wishes on the airwaves).
Then there are the spectrum caps, which could mean the telcos may prefer to share spectrum rather than trading it. In sharing, only 50% of the airwaves shared by each telco is considered. But that may not reduce the impact of a higher outgo (in terms of revenue share with the government) due to trading.
Market leaders like Bharti Airtel, Vodafone and Idea have been clamouring for more spectrum and are expected to be the likely buyers.
Who ends up scooping up the most amount of spectrum depends on two factors—the willingness of the sellers to sell (either by choice, or under pressure from their lenders), and on being able to overcome “the band and the total cap rules” (an operator is not allowed to have more than 50% of the total spectrum assigned in a band, and more than 25% of the total spectrum assigned to all operators).