Editorial: Spectrum of destruction

Feb 17 2014, 00:01 IST
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SummaryImportant to learn lessons from Februarys auction

If telcos Bharti Airtel and Vodafone have bid aggressively not just to retain part of their 900 MHz spectrum, but have also bought significant amounts of 1800 MHz spectrum, the reason goes beyond the need to protect their existing customer base. Since 5 MHz of 900 MHz spectrum is the minimum size required for offering data services, both have bid for this amount in Delhithey have also bid for 7-8 MHz in the 1800 MHz band to migrate their existing voice customers, leaving the 900 MHz band free for offering pure data services. Both have 3G spectrum for data services in Delhi, but data services are growing by leaps and bounds while growth in subscriber minutes for voice has levelled off from 54% in FY09 to 9% in FY13 across the country. For Bharti Airtel, data subscribers have risen from 35.8 million in September 2011 to 54.4 million in December 2013. Their average data usage has shot up from 107 MB to 249 MB in the same period and average revenues per user from R44 to R75in just the last five quarters, the share of data as a proportion of mobile revenues rose from 4.9% to 10.3%.

However, if customer tariffs dont start rising, the value destruction will be huge. While tariffs have been rising over the past few quarters, Reliance Jio coming in will put a cap to the price hike, as will the fact that existing players like Idea are getting more aggressivefew expected Idea to bid for the 900 MHz band, for instance, given its high cost. Were last weeks auctions a one-time event, it would be one thing but, over the next few years, there will be several 900 MHz licenses that will come up for auction. And in a constrained supply situation, auction prices will simply zoomthere is very little 1800 MHz spectrum left, suggesting the supply constraint is going to get worse. Kotak Institutional Equities, for instance, has assumed the prices for future 900 MHz auctions will be double of the 1800 MHz bids in the current auctionsthis is true of Delhi and Mumbai, but in Kolkata the difference was 2.7 times. Even this reduces the value of Bharti Airtels shares by 8.5% and a little over 24% in the case of Idea.

Augmenting spectrum supplies is critical and while getting the defence ministry to vacate spectrum is an obvious area to work on, there are

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