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Spectrum auction: scaling up 4G and 3G operations in focus

As the Big Four telcos scramble to close gaps in key markets, Jio emerges the dark horse with the biggest earnest money deposit

India's largest spectrum auction on October 1 is likely to see heavy demand for the 4G bands of 1800 MHz and 2300 MHz, and the 3G band of 2100 MHz, with the two smaller companies in the Big Four - Vodafone India and Idea Cellular - pegged to be the most aggressive bidders to catch up with Airtel and meet the Jio competition.

A total 2354.55 units of spectrum will be auctioned across the 3G bands of 900 MHz and 2100 MHz and the 4G bands of 700 MHz, 800 MHz, 1800 MHz, 2300 MHz and 2500 MHz.

Apart from the premium 700 MHz, which will be sought after not only for 4G but also for future 5G, companies may bid strongly for 4G bands 1800MHz, 2300MHz and 2500MHz.

Vodafone India is expected to maximize purchases in 1800 MHz so as to launch 4G in all key markets. Currently the company has 4G airwaves in only five circles where it has already launched services. It is expected to plug 3G spectrum gaps in seven circles to have a pan-India 3G footprint in the 2100 MHz band.

Vodafone may buy cheaper 4G spectrum in the 2500 MHz band as a fallback option if the price of 1800 MHz airwaves shoot up, given the strong demand likely for this band.

Idea Cellular, with 4G spectrum and operations in 10 circles, could selectively target spectrum in the 1800/2100 MHz bands to plug 4G and 3G gaps in its leadership circles. It could even target expensive 700 MHz spectrum if other options fail, for its leadership circles like UP-West and Gujarat

The company could target 4G airwaves in the 1800 MHz band in UP-East and Bihar and similarly plug 3G gaps in the 2100 MHz band in Mumbai, Karnataka and Tamil Nadu to reinforce its position in its leadership markets.

Market leader Bharti Airtel, which has the strongest 4G footprint among incumbent carriers, is widely expected to target 3G airwaves in the 2100 MHz band to plug gaps in Kolkata, Kerala and Punjab. It is also likely to go for incremental 4G spectrum purchases in the 2300 MHz band in five circles to have a pan-India coverage in this band.

Latest entrant Reliance Jio Infocomm (Jio), despite investing a huge amount on setting up infrastructure, is expected to bid the most in the upcoming auction. Its bidding strategy could, among other things, include plugging gaps in its 800 MHz holdings in order to jointly access 10 MHz of contiguous 4G spectrum in top markets with Reliance Communications (RCom), with which it has a spectrum-sharing deal.

Jio may also leverage the recent reduction in the block size of airwaves in the 2300 MHz band from 20 MHz to 10 MHz, to augment its countrywide spectrum holdings in this band.

Jio has deposited the highest earnest money for the auction of around?Rs.65 billion, followed by Vodafone Rs.?27.4 billion, Idea Cellular Rs.?20 billion and Bharti Airtel Rs.?19.8 billion.

In contrast, Tata Telecommunications deposited Rs.?13 billion, Reliance Communications (RCom)?Rs.?3.13 billion and Aircel Rs.1.2 billion respectively. Bidding by these three firms is slated to be a low key affair.

Tata and RCom may focus only on markets where their permits expire next year. RCom could target 1800 MHz spectrum in Gujarat where its licence expires next September while Tata may bid in the 800 MHz band in key circles like Mumbai, Maharashtra and Andhra Pradesh, where its permits expire next year.

With RCom and Aircel set to merge, the bidding strategy of these two will be co-ordinated.

Analysts expect the auction to yield around?Rs.?800 billion for the Government vs. Rs.?640 billion estimated in the 2016-17 Budget. Given the high stakes in this auction, those estimates might turn out to be too low.

Based on stories in Economic Times and Hindu Business Line

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