With the Department of Telecommunications (DOT) offering 2,345 MHz of spectrum, the stage is set for the largest spectrum auction in the history of the Indian telecom industry.
As shown in Chart 1, roughly 88 per cent of spectrum being offered is in four bands - 700 MHz, 211 MHz, 2300 MHz and 2500 MHz - of which 700 MHz and 2500 MHz bands will be auctioned for the first time. The total value of the spectrum is a staggering Rs 5.67 lakh crore, as shown in Chart 2, with the 700-MHz band alone accounting for 70 per cent of the value of all spectrum being offered.
The upcoming auction is critical for telecom operators. India currently has 18 internet users per 100 people versus 49 in China. It ranks 155th in the world in mobile broadband internet access. But with more people accessing the internet through mobiles, operators need more spectrum to offer data services.
As shown in Chart 3, currently about a fourth of customers of major operators are data subscribers, up from a fifth two years ago. With more customers gravitating towards data services, revenue from data services has more than doubled as shown in Chart 4. With these numbers expected to rise, having spectrum for offering data services is critical for growth.
But analysts expect very limited participation in the 700-MHz band, which accounts for a third of the spectrum offered, as it is priced expensively and the technology for this band is in a nascent stage. Trai had recommended that the band be priced at four times the reserve price of the 1800-MHz band which translates to a pan-India reserve price of Rs 11,485 crore per MHz. Given this and the existing spectrum held by operators, as shown in Chart 5, analysts expect greater participation in the 1800-MHz and 2100-MHz bands.
But aggressive bidding by operators is likely to deteriorate their already precarious financial health. Chart 6 shows the existing debt levels of major operators. ICRA estimates that post the auctions, the aggregate debt of the industry will rise to around Rs 4.7 lakh crore, up from Rs 4.1 lakh crore currently.
