Spectrum Auction to Begin from Today

The government has opened bidding for airwaves from today. These include airwaves that were already in use. As a result, the big telecom operators like BhartiAirtel Ltd. and Vodafone Group Plc. will be competing with Reliance JioInfocomm in the auction.

Mukesh Ambani’s Reliance has shown its strong stand by giving the largest amount for deposit. It has given a bank guarantee of Rs. 4,500 crores; followed by Airtel with Rs. 4,300 crores and Vodafone with Rs. 3,700 crores.

Expectations from the auction

The airwaves that will be auctioned provide service to over 300 million customers. It is predicted that Airtel, the largest carrier in the country, followed by Vodafone may spend around $4.5 billion for the spectrum.

The government sold 22 regional circles that had varied dates as expiry. In the previous year, it was able to raise Rs. 612 billion from airwaves. This year, the government is hoping to raise Rs. 64,840 crores with 20 circles up for sale. These circles cover around 1.1 billion people. The auction will take place for 2 weeks and will decide the fate of survival for some telcos.

Around two-fifth of the spectrum belong to the 900 megahertz (Mhz) band. Signals travel quickly in this band with less number of towers, thereby improving the voice quality. Hence, this spectrum will be the most preferred one.

The four largest operators currently have control over this band. Besides Airtel and Vodafone, these are Idea Cellular Ltd. and Anil Ambani’s Reliance Communications Ltd.

Plans of Reliance

In previous year’s auction, Reliance Jio had acquired 1,800 Mhz spectrum. It also secured 2,300 Mhz airwaves in 2010. These two spectrums will enable the company to provide high speed data. Ambani wishes to build the biggest broadband network of the world. The company is thus looking forward to capture 900 Mhz band as well, which supports both voice and data.

Government plans

Government of India has announced its $18 billion project of Digital India. It aims to provide people with high-speed data and online government services. With the money received from the auction, the government plans to bridge the national budget deficit.

Post the spectrum scam, wherein 122 permits were cancelled as they were given illegally and at very low prices, India modified its rules in 2012.

Risk for companies

6 coverage areas of Airtelare on sale in the auction. These contribute to 35% of the total revenue collected from its cellular phone services. For Vodafone, it is seven circles that have 44% share in the revenue while Idea has the largest 73% revenue of cellular phone service at stake.

Impact of the auction

The phone bills of the consumers may soar as the telecom companies will seek to repay their loans, they took to buy the spectrum. A hike of 5p/min is expected. However with the competition getting stiffer, it will be difficult for the companies to increase the rates.

If a company will lose its previously acquired band then it will have to shut its business in that area. As a result, the subscribers of that region will have to search for other cellular operator.

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