RCOM might have to shut operations in few circles after recent spectrum auction

Thomas George

The slugfest for spectrum just got over after 19 days of rigorous bidding. Telecom service providers are now taking a breather, after a grueling time of bidding for their pound of spectrum.

The spectrum auction helped the incumbents in their major goals of renewing a minimum 5 MHz of 900MHz-band spectrum in their respective 900MHz circles, as well as securing spectrum to enhance their data services footprints in their existing service circles. Most of the players protected their current spectrum to ensure the continuity of their operations for next 20 years; a few of them bought spectrum to de-risk themselves of their major renewals due in the next 3-4 years also; while players like R-Jio and the other top players expanded their spectrum breadth for data services.

The total cumulative payout for the auctioned spectrum has reached INR 1.1 trillion and with an upfront payment of about 280 billion. Top 3 players will contribute 78 percent of the payout. The aggregate payouts for various players are as follows:

Big Boys retained and renewed their spectrum

Top three players Bharti Airtel, Vodafone, and Idea- each renewed a minimum of 5 MHz of 900 MHz spectrum in all of their circles set for renewal. Bharti won the bid and enhanced its 900 MHz holdings in five out of its six renewal circles. Idea kept their focus on renewing 900MHz spectrum in most of its nine renewal circles. Bharti and Vodafone have also made good progress in terms of buying fresh spectrum in order to enhance their data services coverage.

But concerns running high about the players like RCOM which has not been able to renew in five out of its seven renewal circles and hence it might choose to shut down its 2G GSM operation in few circles like Assam, Bihar and West Bengal. These circles contribute merely 13 percent to its overall wireless revenues. However, RCOM did buy an alternate 1800 spectrum in two circles, while Telenor could not win any spectrum.

As far as renewal pressure perspective is concerned, leading incumbents can now look forward to a long haul, as they need not worry about ‘business continuity risks’ anymore, thanks to the unique spectrum renewal approach that the government adopted this time around.

Fueling data footprint across the circles

The other objective of incumbents was to expand their data footprints in all circles they are present and extend their services in the light of the imminent roll-out of R-Jio in the second quarter of 2015-16. There might be few gaps in the coverage maps for these players. However, the all the top incumbents are well covered with a combination of 2G, 3G and 4G for their various circles post the auction.

Today, Bharti is best positioned as it doesn’t have any 2G only circle in their basket now and their LTE (4G) footprint is around 70 percent. They are also well covered with close to 98 percent of their revenues. They can extend mobile broadband services effortlessly in all its circles.

Though Idea and Vodafone are having few circles with 2G, the contribution of those circles to their revenue will be lower than 13 percent. On the other hand, they have been able to secure data spectrum to leverage on the growing data demand in all their leading circles.

R-Jio, in this auction has largely focused on completing its FD-LTE spectrum footprint and managed to expand this to 20 circles from 14, post the auction. The only two circles, where R-Jio does not have FD-LTE spectrum are Punjab and UP (West).

However it is needless to say that all service providers will have huge financial pressure to meet the payouts resulting in rising debts in their balance sheets- but the positives ahead can push all such worries behind, with the expected growth and the free cash flow generation in their respective business.

All incumbents are better placed after auction to leverage and build on the upside in 3G and 4G data growth the country is going to witness soon.

The author is SVP & Head, CyberMedia Research(CMR)