Spectrum Auction: Will it Hit $19-20 Billion?

Spectrum-Auction-2015:-Will-it-hit-$19-20-billion?

Telecom Minister Ravi Shankar Prasad

At the end of day 4, the government is assured of Rs 86,000 crore and the Spectrum Auction 2015 will continue today after a day break. So the big question is will Spectrum Auction 2015 hit $19-20 billion?

In the last four days, the Spectrum Auction 2015 has seen a total increment of Rs 26,000 crore i.e. a daily increment of 6,500 crore ($1.04 billion). If the spectrum auction continues for additional 5-6 days, it will definitely hit $19-20 billion.

According to Sunil Tirumalai of Credit Suisse, “The ongoing spectrum auctions are continuing to beat market expectation on both pricing as well as demand for new spectrum. After four days and 24 rounds of bidding, the govt is assured of $15 billion revenues.”

Spectrum Auction 2015: Daily Gain to Government
Day – Estimated Bids – Gain (in Rs Crore)
Day 1 – 60,000 – NA
Day 2 – 65,000 – 5,000
Day 3 – 77,000 – 12,000
Day 4 – 86,000 – 9,000
NA stands for Not Applicable
Source: DoT and TeleAnalysis

The spectrum auction is set for aggressive bidding this time as licenses of all top telecom operators are going to expire this year. Bharti Airtel’s licenses in six circles, Vodafone India in seven circles, Idea Cellular in nine and Reliance Communications in seven circles are coming for renewal in 2015-16. If all operators were to renew their existing spectrum, the cash outflow is presently 75 percent over reserve prices.

The 900 MHz auction average prices are now up 75 percent over reserve price. The count of circles where prices have already doubled is now five. However, the bidding intensity here appears to be slowing says Sunil.

“800 MHz continues to surprise with 87 percent of all spectrum now assured of being sold. Prices in 9 circles are above reserve prices. In 2100 MHz, 76 percent of spectrum is assured to be sold added Sunil.

With spectrum prices shooting up the operators could be forced to start choosing which circles they want to retain – and hence this auction may have much bigger impact on industry than just the spectrum amounts on the incumbents commented Sunil.

Percentage of Spectrum Getting Sold and Assured Revenues

Spectrum Band – %age of Spectrum to be sold – Assured Revenues ($ mn)
800 – 87% – 2,037
900 – 100% – 10,973
1800 – 64% – 991
2100 – 76% – 1,344
Total – 15,345
Source: DOT, Credit Suisse estimates

The government can get an increased revenue from Spectrum Auction 2015 from two ways. First, the percentage of spectrum sold increases from present average of 81.75 percent. For the operators there is lot of opportunity in 1800 MHz, 2100 MHz and 800 MHz. Second, the operators have to increase their bid amount to get respective circle so that the overall number hits $19-20 billion.

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