CELLULAR SHOWDOWN
India’s mobile carriers in $14-billion survival fight as deeppocketed Reliance joins latest spectrum auction.
What happens when a wireless operator with millions of customers loses the airwaves it needs to provide service? Indian businesses may soon find out once the government’s closely watched cellular auction wraps up.
The government opened bidding on March 4 for airwaves already in use by the biggest carriers, including Bharti Airtel Ltd and Vodafone Group Plc. The bidding was expected to last at least until Friday, and participating carriers were not allowed to speak to the media until the auction ended.
As of Thursday authorities had raised a record 1.09 billion rupees (US$17.4 billion), exceeding the 1.06 billion rupeees generated in 2010, with 89% of the available spectrum sold. The government had set a target of raising 648 billion rupees through this year’s frequency sale.
Companies are competing to keep their licences in the auction against Mukesh Ambani, who is India’s richest man and has signalled his determination by making the largest deposit of the competition.
India’s approach could mean seismic change for the world’s second-largest smartphone market. The airwaves up for auction serve more than 300 million customers and account for almost half of the $19 billion in combined revenue for the four largest operators.
“For some of the telcos, renewal of spectrum is a key for survival,” said Nitin Soni, a director at Fitch Ratings in Singapore.
Bharti, India’s biggest carrier, and second-ranked Vodafone could each spend between US$2.5 billion and $4.5 billion for the spectrum, Soni said. Idea Cellular, the No. 3 carrier, may spend the most among incumbents as it has the greatest proportion of spectrum involved in the sale.
Ambani’s Reliance Jio Infocomm Ltd submitted a bank guarantee of 45 billion rupees ($726 million), the most of any carrier, to participate in the auction, according to Mjunction Services Ltd, which is running the sale. Bharti Airtel was second with 43 billion rupees, and Vodafone posted 37 billion.
India adopts a staggered approach to spectrum, selling 22 regional “circles” of coverage with different expiry dates. Last year, the government raised 612 billion rupees from airwaves in cities including Mumbai and New Delhi.
A Supreme Court judge is still considering challenges to this year’s auction procedures and will rule on the final result, with the next hearing scheduled for March 26.
This year’s auction includes 20 circles covering 1.1 billion people. Almost 40% of the spectrum for sale is in the 900-megahertz band, one of the most coveted by operators for voice calls because signals travel farther and require fewer towers to be built.
It’s also the band currently held by the four largest operators, a group that also includes Idea and Reliance Communications Ltd, the carrier controlled by Mukesh Ambani’s brother, Anil.
Reliance Jio, a unit of Mukesh Ambani’s oil refining and retail empire, secured 1,800 Mhz spectrum in last year’s auction to add to the 2,300 Mhz airwaves it acquired in 2010. Both are suited to high-speed data.
The billionaire, who said in June that he was building “the largest broadband network that the world has ever seen,” is now probably eyeing the 900 Mhz band to add voice services, said Aliasgar Shakir, an analyst at Elara Securities (India) in Mumbai.
“They’ll be looking to acquire 900 Mhz because it’s the most compatible for both voice and data,” Shakir said. “If they only wanted to do pure data, they could have done it already.”
For Bharti Airtel, the six coverage areas up for auction bring $803 million in quarterly revenue, or 35% of the company’s total cellular phone service revenue, according to government filings. Vodafone has seven circles at risk, accounting for 44% of revenue, while Idea Cellular has 73% of its cellular phone service revenue coming from circles up for auction, according to the filings.
“Idea has the most at stake in this auction, that’s for sure,” Soni said.
Spokesmen for Vodafone, Idea, and Reliance Jio confirmed that the companies were bidding, but declined to comment on their expectations. Spokesmen for Bharti Airtel and Reliance Communications didn’t respond to requests for comment.
India’s spectrum sales have been affected by scandal in the past, and the country changed the rules in 2012 to redistribute airwaves every time they expire.
The Supreme Court cancelled 122 permits sold in 2008 after ruling they were granted illegally. The auditor-general said the permits were sold at “unbelievably low prices” and may have cost the government $31 billion in missed revenue.
Guidelines for this year’s auction have set goals including stimulating competition, avoiding hoarding and promoting the rollout of services.
While Prime Minister Narendra Modi plans to use the money to help narrow the budget deficit, it comes as his government tries to implement its Digital India policy, an $18-billion programme to expand high-speed internet access and offer government services online.
While high auction prices will help the government, they are also likely to drive up prices for consumers as carriers try to repay debt they add to pay for spectrum. The average monthly phone bill in India is about $2.
Data and calling rates may rise by about .05 rupees per minute, according to Crisil Ltd, the local unit of Standard & Poor’s. That would suggest a 13% increase on Bharti Airtel’s average voice rate.
Crisil expects wireless operators to add about 700 billion rupees in debt, or about a one-third increase from current levels.
If Reliance Jio enters the voice business, raising rates will be difficult for the incumbents, said Sudip Sural, senior director of Crisil in Mumbai.
Any company losing previously held airwaves will probably have to shut down business in that region and abandon any infrastructure it has built. Companies also will lose revenue if they can’t switch to other bands, a move that would probably require new towers or technology.
If companies shut down their business in a particular circle, their subscribers will have to look for new operators, said Rishi Tejpal, an analyst at Gartner Inc in New Delhi.
“For some operators, it’s a do-or-die situation,” Tejpal said. “And with Reliance Jio in the picture, nobody knows their strategy.”
Bloomberg
Reliance Jio, controlled by billionaire Mukesh Ambani, already holds spectrum for data and is determined to get into the voice market