Nod for 4G auctions: With prices unchanged, govt to fall short of targeted Rs 3.92 lakh crore

The Union Cabinet on Wednesday approved the next round of spectrum auctions to be held in March. However, with the government not reducing the price of the premium 4G band (700 MHz) – its second attempt to sell it after the first one in 2016 found no bids – it is unlikely that the operators would bid for it. If it finds no takers, the government would once again find itself falling short of its revenue targets and would be left with substantial unsold spectrum.

Of the total 2,251 MHz of spectrum worth Rs 3.92 lakh crore at reserve price in the 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz bands; which would be put up for auctions, the government can mop up a total of around Rs 1.09 lakh crore, assuming there’s no participation for 700 MHz band. This would be around 27% of the total value. This is the best-case scenario and if operators like Bharti Airtel or Vodafone Idea decide not to renew some chunks of their 1800 MHz spectrum since they are currently being used for 2G services and they have enough spectrum in the same band for offering 4G services, the actual amount could be lower.

The reserve price for the premium 4G spectrum (700 MHz) stands at Rs 6,568 crore per MHz for a pan-India 5 MHz block, which means that the operators would have to shell out Rs 32,840 crore. It is unlikely that the operators are going to bid for it. This price though is 43% lower than what was fixed for the 2016 auctions when also no operator bid for it. This time as the number of operators have reduced to only three, the industry is not in a desperate situation and can always wait for prices to come down even further in future to bid for it.

If the government falls short of its target and is left with unsold spectrum, it would not be for the first time. In the 2016 auctions, the government had mopped a total amount of Rs 65,789 crore, which was 4% over reserve price, and six operators had participated in the bidding. The response was considered lukewarm as only 965 MHz spectrum got sold against a total of 2353 MHz put up for sale, meaning only 40% got sold.

In the forthcoming auctions, the strategy of the operators would be to renew what is expiring and pick up chunks to fill their existing gaps. In terms of renewal the biggest chunk is in the share of Reliance Jio. Its 81.25 MHz spectrum in 800 MHz, which is used for providing 4G services, is expiring next year. Bharti Airtel’s total of 57.60 MHz is expiring, of which bulk 51.40 MHz is in 1800 MHz and 6.20 MHz is in the 900 MHz band. In the case of Vodafone Idea, a total 51.05 MHz spectrum is expiring, of which again bulk of 51.05 MHz is in 1800 MHz while 6.20 MHz falls in the 900 MHz band.

Going by renewals and filling the gaps in spectrum portfolio, the likely outflow of Jio could be Rs 57,790 crore. Since operators need to pay 25% as upfront payment and can pay the remaining over a period of 16 years, Jio’s upfront payment would come to around Rs 14,400 crore.

Bharti Airtel’s total outflow could be Rs 34,023 crore and at 25% upfront payment would need to pay around Rs 8,500 crore. In the case of Vodafone Idea, the total outlflow could be Rs 17,908 crore and upfront payment would be around Rs 4,400 crore.