Spectrum auction signal fades: Lowest earnest money deposit since 2013

Mock auction kicks off on Tuesday, real bidding starts June 6

The earnest money deposit (EMD) collected by the government from bidders for the upcoming spectrum auctions, set to begin later this week, is the lowest in the past six auction rounds, according to data from the Department of Telecommunications (DoT).
 

Combined with much lower demand for spectrum and a cautious stance adopted by market leader Reliance Jio, analysts believe the auctions will likely be a muted affair.
 

On Monday, DoT will hold a mock auction. This auction will mark the first instance where DoT will publish an auction catalogue for a live auction.
 

The three private sector telecommunications operators — Reliance Jio, Bharti Airtel, and Vodafone Idea (Vi) — have collectively put up Rs 4,350 crore as EMD for the upcoming bidding, according to auction-related documents uploaded by DoT.

Comparatively, cumulative EMD was 5x larger in 2022, data indicates.
 

Companies earn points based on the EMD amount they have deposited, which enables them to bid for the number of circles and the quantity of spectrum they want.
 

Higher points mean a higher capability to place bids. Telecommunications companies (telcos) can bid for spectrum worth up to twice their EMD, a note by IIFL Securities said.
 

The auction for 5G airwaves in 2022 saw high bidding intensity, as telcos made a dash for the new technology. For the auction beginning on June 6, the government has set a reserve price of Rs 96,317.65 crore for the 10,523.15 megahertz (MHz) wor­th of spectrum put up for auction.
 

Not spoilt for choice
 

While all unsold spectrum from the last sale is up for bidding again, the quantum of spectrum on offer has shrunk by more than 7x since 2022.
 

Airwaves in the 800, 900, 1800, 2100, 2300, 2500, 3300 MHz, and 26 gigahertz (GHz) bands, covering both voice and data spectrum, are up for sale. However, the 700 MHz band won’t be available, given the low supply after Jio’s purchases in 2022 and subsequent allotments to public sector undertakings.
 

The costly but super-efficient 700 MHz band saw intense bidding in 2022, with large chunks picked up by Jio at an estimated Rs 39,270 crore.
 

While Jio (108 million) and Airtel (72 million) have seen their 5G penetration currently stand at 20-22 per cent of their subscriber bases, network utilisation is rising quickly, with 5G data accounting for 28 per cent of Jio’s wireless data traffic. Analysts believe there is still enough runway left.
 

Jio may pick up much less spectrum than it initially indicated. The telco is widely expected to skip the 800 MHz band, given that it is mostly unsold spectrum from 2022.
 

IIFL Securities expects it to bid for the 1800 MHz band only in four circles despite having posted the highest EMD.
 

However, it may increase its spectrum holding in some circles in the 800 MHz band and increase its holdings in the 3300 MHz band to 130 MHz across all circles, leading to a maximum spectrum spend of Rs 12,000 crore, Jefferies said in a recent analyst note.
 

“This is 4x its EMD — in line with the 2-6x ratio of its actual spend and the EMD submitted in previous auctions,” it stressed.
 

Airtel in the lead
 

As a result, Airtel may end up cumulatively bidding for more spectrum than market leader Jio in the upcoming auctions, owing to its need for spectrum renewal and the requirement for 900 MHz in a few circles.
 

 “While Bharti and Vi have 900 MHz renewal in a few circles, Bharti may also use the opportunity to strengthen its sub-1 GHz holdings,” a note by IIFL Securities said.
 

The investment advisory firm expects Airtel’s spectrum outlay of Rs 10,400 crore to dwarf the Rs 900 crore outlay for Jio and the Rs 1,200 crore outlay for Vi. In case telcos opt for the most relaxed payment option, government receipts in 2024-25 would be Rs 1,200 crore, it said. “We estimate Rs 3,800 crore and Rs 2,500 crore for Bharti and Vi. Jio is unlikely to bid, in our view,” Axis Capital had said earlier.