Spectrum auction to fail: Jio 4G and debts are major factors

Rupee India telecomlead
The proposed spectrum auction from October 1 repeats the same list of telecom companies that participated in February 2015.

Aircel, Bharti Airtel, Idea Cellular, Reliance Communications, Vodafone, Tata Docomo and Reliance Jio Infocomm (Jio) are reported to have submitted applications for the spectrum auction, with Telenor backing out this time too, cited sources from the regulator.

India is into its biggest spectrum sale till date, with the government aiming to raise 5.6 trillion rupees or $83 billion for spectrum that has the potential to reduce buffering on videos and enhance download speed of Internet.

The second largest smartphone market in the world with over 1 billion users has its net wireless companies owing over $61 billion in debt in a situation where the ARPU is also falling day by day.

The net debt has gone up by 41 percent in the past two years, reports credit rating agency ICRA. Also agency reports add that the consolidated debt level of the industry stood at around Rs 3.80 lakh crore in December 2015 against Rs 2.90 lakh crore in March 2014.

All this, added with companies trying to match the lucrative offers by Reliance Jio owned by billionaire Mukesh Ambani, may lead to the operator bids falling well below the government expectations.

Another development affecting auctions is the announcement of the Reliance Communications and Aircel merger on Wednesday, with both the groups having applied separately to participate in the auction.

Though the merger may require another quarter or two to fall into place, the auctions may see either the telecoms participating together, or one of them bowing out.

“We have received seven applications and all the major players have submitted their applications. We will be publishing ownership details of all applicants tomorrow (Thursday),” an official at DoT said.

The ownership details will list the net worth of each participating company, maintaining transparency so that the government or the companies can access related net worth before the bidding process begins.

In a country where voice call related services list among the cheapest in the world, with the average cost further dipping from 2 cents a minute to below 1 cent, the commercial operations of RJio with a 1.5 trillion rupees investment, may lead to further cuts.

Already, the leading Bharti Airtel and trailing Idea Cellular have reduced their data charges, with latest addition in spectrum owing to the regulator allotting permission for sharing or trading of airwaves.

The auction will only draw about 650 billion rupees, or $9.7 billion as per ICRA estimates. The 2015 auction generated $18 billion, and the 2014 one raised $9.8 billion.

The auctions will have 4G-capable airwaves ranging from frequencies of 700 MHz, 800 MHz, 900 Mhz, 1800 MHz, 2100 MHz and 2300 MHz on sale, which is to be worth Rs 5.63 lakh crore.

The 700 MHz band, which is a first time auction item, is the most sought after as it can slash the cost of operation one-third, when compared to 3G under the 2100 MHz band.

It has a potential to fetch bids worth Rs 4 lakh crore if the entire spectrum is sold at the base price, but experts claim that the costly price tag on it may affect its demand.

After an estimated level of participation in the auction, the industry debt would go up to around Rs 4.60 lakh crore, as per ICRA.

Vodafone and Idea Cellular, with 4G services in only half of the 22 telecom circles of India, are expected to bid most for spectrum, to keep up with the pan-India spectrum offered by rivals, Bharti Airtel and Reliance Jio Infocomm.

According to Fitch Ratings, both Vodafone and Idea may spend over $2 billion and about $1.3 billion, respectively, to secure additional 4G and 3G airwaves.

Also, Airtel is expected to bid anything between $700 million to $1 billion to patch up 3G coverage gaps and enhance 4G, as per Bank of America Merrill Lynch and Fitch.

Telenor, not participating in the event, had previously conveyed that it will exit India if not able to acquire additional capacity for its networks at a reasonable cost.

The eighth carrier in the country also conveyed that it is not likely to participate in the spectrum auction at its quarterly results in July, as it is controlling its capital expenditure.

The revenue from the telecom space was reported as Rs 98,995 crore, including Rs 64,000 crore from the upcoming auction of about 2,354.55 MHz of spectrum and the rest from various levies and services this financial year, as per the Budget from the Finance Ministry.

Amid this scenario, Reliance Jio is estimated to achieve a sale of about 3-4 million 4G handsets a month, which may lead to around 150 million 4G handset users by March 2018, failing to meet the target of 100 million subscribers in the shortest time.

Also, Jio is now acquiring about five lakh subscribers a day, with a current subscriber base of more than five million.

“We have redesigned the Jio sign-up experience and made it 100 percent digital using an Aadhaar based eKYC process. With this digital process, we will have a capacity to acquire a million customers a day,” RIL chairman Mukesh Ambani had said earlier at the company AGM.

This goal of Reliance Jio seems far-fetched, with only 75 million 4G-enabled handsets being used at present in the country.

Vina Krishnan
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