Reliance Jio upsets telcos' auction plans

Might buy spectrum in 900-MHz and 2,100-MHz bands in March auction

Upping the ante in its battle with incumbents, Reliance Jio on Monday said it would take part in the auctions for pan-India spectrum beginning March 4.

The Mukesh Ambani-promoted telecom operator will be locking horns with Bharti Airtel, Vodafone, Idea Cellular, Uninor, Reliance Communications, Aircel and Tata Teleservices for spectrum in the 800-MHz, 900-MHz, 1,800-MHz and 2,100-MHz bands. These companies applied for the auction with an earnest money deposit on Monday, the last day to do so.

However, CDMA operator Sistema Shyam TeleServices said it would not bid as the "pricing of the 800-MHz spectrum is high and does not merit a strong business case", raising questions on its expansion in India.

WHO'S IN, WHO'S OUT

• Bharti Airtel, Vodafone, Idea Cellular, Tata Teleservices, Uninor, Aircel, Reliance Communications have also applied
   
• CDMA operator Sistema Shyam pulls out of race for 800 MHz, saying price is too high

Along with other incumbents such as Airtel and Idea Cellular, Sistema Shyam has also challenged some of the conditions in the auction document at the Telecom Disputes Settlement and Appellate Tribunal or in courts. To ensure these cases do not stall the auctions from which the Centre expects to raise Rs 80,000 crore-1 lakh crore this year, the department of telecommunications on Monday moved the Supreme Court, asking the auctions not be stayed.

Sources said Reliance Jio was forced to jump into the fray because in the earlier auction in February, it was able to grab spectrum in the 1,800-MHz band in only 14 circles. The company, launching its fourth-generation (4G) long-term evolution (LTE) data services in June, has had to change tack from earlier when it was depending only on the 2,300-MHz band for the LTE rollout. The high-frequency band cannot reach inside buildings (from where most of the data is consumed) and the company would have had to make large investment in towers. Hence, Reliance Jio has decided to also use the 1,800-MHz band that is used globally for 4G.

In February, the company failed to win spectrum in 1,800 MHz in Uttar Pradesh (UP) East and West, Rajasthan, Haryana, Bihar, Himachal Pradesh, and Punjab. Experts said this time, Reliance Jio could only bid either for spectrum in 900 MHz or in 1,800 MHz (whatever is left in that band, that is). The problem though is that in most of these circles - for instance, in UP East and West, Rajasthan, and Bihar - there is little contiguous spectrum in 1,800 MHz for LTE launch (you need at least five MHz).

Some analysts said the company could use spectrum in 800 MHz, too.

Jio's entry means a hard time for incumbents looking to retain spectrum in 900 MHz that they have to return after their licences expired early this year. For example, in Rajasthan, Haryana, Himachal Pradesh and Punjab, the contest could be between three players - two incumbents such as Bharti and Vodafone, Reliance Jio and another company such as Uninor.

Reliance Jio is also expected to bid for pan-India five MHz spectrum in the 2,100-MHz band, used for third generation (3G) services. However, with only one slot up for sale, it is likely even those such as Idea and Aircel that do not have pan-India 3G spectrum would join the auctions.

Details of who would bid for which circle were not disclosed. However, sources said Reliance Communications would try to retain its 900-MHz spectrum in seven circles (mostly in the C category), where its licences expire this year. It is also looking at spectrum in one of the A circles. In 2015-16, Bharti Airtel will see its licences for 900-MHz spectrum expire in six circles, Idea Cellular in nine, and Vodafone and Reliance Telecommunications in seven.

Cellular Operators Association of India Director General Rajan Mathews said,"Operators are likely to bid aggressively in 900 MHz. Telcos such as Airtel, Vodafone, RCom, Idea, Vodafone and Airtel are keen to retain their spectrum in the existing circles. Large circles that account for bulk of the profitability for telcos would probably be the first ones of greatest interest."

According to CRISIL's estimates, companies will fork out Rs 90,000 crore in this auction.

"With nearly half of Rs 1,200-billion (Rs 1.2-lakh-crore) annual revenues at stake for large operators, the importance of the forthcoming spectrum auction can't be overstated. Telecom operators will shell out more than Rs 900 billion (Rs 90,000 crore) to bag airwaves in the upcoming telecom auction," according to CRISIL.

The 900-MHz spectrum, considered most efficient for wireless telephony, is expected to see the biggest demand from telecom players.

Aggressive bidding will mean companies would have to raise their blended average voice and data revenue a minute (ARPM) by at least five paise.

In the last 18 months, companies have been able to grow their ARPM by two-three paise, to 47 paise, on rate increases and rising data use. "Another increase of five paise will not be an easy task in the face of intensifying competition, especially in data. Ability to increase ARPM will be a key monitorable," according to CRISIL Director Manoj Damle.