Friday, 6 March 2015

Second day of telecom spectrum auction ends; bids grow to Rs 65,000 crore

The auction will continue tomorrow, despite it being a holiday on account of Holi festival.
NEW DELHI: The Centre was assured of around Rs 65,000 crore from the ongoing spectrum auction, surging past its 2014 tally, as top carriers Bharti Airtel, Vodafone and Idea Cellular fought to preserve their holdings in the face of stiff challenges from each other and from Reliance Jio Infocomm, though overall interest levels for 3G airwaves slipped.

Still, after companies went all out on the first day to stake out their positions, bidding was slightly less intense on Thursday as most contenders carefully weighed options before making their auction calls, experts said.

"The bidding has taken place in all bands. At present, a value of approximately Rs 65,000 crore has been committed by bidders," the telecom department said, adding five rounds of bidding took place on Thursday. "There is still spectrum, which is yet to be sold."

The government had raised Rs 61,162 crore from the sale of 2G airwaves in February 2014, a figure easily surpassed this time around, driven by huge interest in the cost-efficient 900 Mhz band, which has historically been used for 2G and can be used to offer 3G services under new rules.

Bharti, Idea, Vodafone and Reliance Communications are fighting to win back spectrum in six, nine, seven and seven circles, respectively, in the 900 Mhz band. This band alone can contribute over Rs 40,000 crore, or roughly half the auction proceeds at base price, while the next largest chunk of over Rs 17,500 crore is expected from airwaves in the 2100 Mhz band.

According to a person familiar with the matter, the bidding levels for 900 Mhz have already risen around 45% from the base price of nearly Rs 3,400 crore per Mhz.

Idea faced the biggest challenge among operators to preserve its spectrum holding in Uttar Pradesh (West), one among its nine expiring service areas. It has a large population and immense potential, but the No. 3 carrier doesn't have any fallback. If it doesn't win, the bandwidth will go to the winner and its subscribers will be up for grabs.

The bids for this circle rose to Rs 88.14 crore for a block of 900 Mhz airwaves, more than double the base price of Rs 34 crore, as per telecom department data. "Bharti Airtel and Reliance Jio both don't have any 900 Mhz holdings in that circle, and could be looking at this, while Vodafone may want to add to its holding," a person familiar with the matter said. "Uninor has 1800 Mhz in this circle and could also be in the running to add 900 Mhz as it doesn't have any data spectrum."

"The most impacted operator is Idea with increased outgo of 28.4% to Rs 222 billion (Rs 14 per share higher than the reserve price)," Credit Suisse said in a note to clients after bidding ended on Wednesday.

Other major circles of interest in the band on Thursday included Punjab, Rajasthan and Bihar. In the first, Bharti Airtel is fighting to protect its holding. Vodafone is in a must-win situation in Rajasthan and it's the same for RCom in Bihar.

The 3G band saw muted interest compared with the first day, with demand only in three of the 17 circles in which spectrum is on offer while the 800 Mhz band saw bidding in nine circles, prominently in Madhya Pradesh, where the price went up to Rs 131.85 crore, up 16% from the base level. The four circles of Mumbai, Madhya Pradesh, North East and Assam saw the most activity because of their contiguous pairings, something that would be critical for offering 4G LTE services. "It would be Jio and Bharti," said another person, referring to the companies that would have driven the bidding.

The aggressive start to the auctions hit telecom stock prices on Thursday even as the benchmark Sensex ended higher. On the Bombay Stock Exchange, Idea dropped to a low of Rs 149, before ending 3.97% down at Rs 149.95, while Bharti Airtel fell 0.93% to Rs 347.9, recovering from an intra-day low of Rs 344.10. RCom came off a 1.2% intra-day low to end flat.

The final results of the auction will not be declared until the Supreme Court grants permission as it prepares to hear a challenge to the auction procedures by telecom companies. The court is due to hear the case on March 26.

Up for sale is 103.75 Mhz in the 800 Mhz band, 177.8 Mhz in the 900 Mhz band, 99.2 Mhz in the 1800 Mhz band — historically considered 2G bands — and 85 Mhz in the 2100 Mhz band — considered the 3G band.