Media’s ‘failed auction’ portrayal amuses analysts

The top four telecom operators including Bharti Airtel, Vodafone and Idea Cellular are mostly done with building their spectrum footprint and the focus will now shift to monetising the massive data spectrum investment made in the past few years, said analysts.

Kotak Institutional Equities in a report said that it is amused by the ‘failed auctions’ commentary in sections of the media. “Everything has a context to it and the most critical context, now that the top four operators are hopefully mostly done building their spectrum footprint, is whether the industry pie can become large enough to justify the massive spectrum investments,” said Kotak.

It pointed out that cumulative bids in auctions since 2010 now total Rs 3.5 trillion. For an industry with annual revenues in the vicinity of Rs 1.8 trillion and EBITDA around Rs 500 billion, “these are not small numbers,” it said.

Kotak said that telecom industry has placed its bets largely on one variable — data volumes — and a disappointment on that front could mean a long phase of “sub-par” industry economics.

The spectrum auction which ended on Thursday saw no bids for 60 per cent of airwaves on offer and government receiving bids worth Rs 65,789 crore against potential of Rs 5.6 lakh crore.

No bid came for the most expensive spectrum 700 MHz, offered for the first time in an auction.

Bank of America Merrill Lynch said that Bharti Airtel, Vodafone and Idea -- have secured adequate 4G spectrum during the auction to counter Jio, making them more competitive to poach subscribers. “We now believe that the top three telcos have adequate 4G spectrum to counter Jio, making it more competitive to poach subscribers. We now also see faster consolidation among smaller telcos, given lack of data spectrum,” said Bank of America Merrill Lynch.

However, it said that the top three operators still lack a sub-1 GHz 4G band that Jio has and therefore, there is a possibility that these companies may purchase spectrum in the 700 MHz in future.

Meanwhile, Bharti Enterprises chairman Sunil Mittal said on Friday the government needs to have a relook at the pricing of expensive 700 MHz band.

“Three or four solid networks around the 700MHz would have taken care of a lot of rural broadband networks. This is a missed opportunity. I hope the government will look into this and correct that particular part,” Mr Mittal said. Although only 40 per cent of the spectrum that was put up for auction was taken, he refused to call the process a failure.

“It is not a failure. It is $10 billion, Rs 66,000 crore (auction). Why do you call it a failure I think the government did very well by putting on the table a lot of spectrum and it must be congratulated for running a fantastic, open process,” he said.