India is holding one of the biggest spectrum auctions seen in recent years, making available 103.75 MHz in the 800 MHz band, 177.8 MHz in the 900 MHz band, 99.2 MHz in the 1,800MHz band and 85 MHz in the 2,100 MHz band, for a total of 465.75 MHz of mobile spectrum, intended to support 2G and 3G mobile networks.
Unlike recent mobile spectrum auctions in other countries, most of the auctioned spectrum already is used by one of the larger Indian mobile firms. India licenses mobile spectrum for 20 years, and it must now be reacquired by the firms that presently use it.
Most of the spectrum put up for auction is at present held by Airtel, Vodafone, Idea Cellular and Reliance Telecom, on licenses expiring in 2015 to 2016.
The auctions are not finished, but already have raised some US$12 billion. In part, the amount of spectrum up for auction is so large because licenses granted 20 years ago to the largest Indian mobile firms are up for rebidding.
Should existing firms fail to reacquire their present spectrum, they would have to compensate by acquiring new spectrum at least equal to what they lost. That alone would drive prices robustly, as the cost of acquiring spectrum protects existing revenue streams, not just creating the foundation for creating them.
So far, prices paid in the 900 MHz bands are about 75 percent above the minimum reserve prices set by the Department of Telecom, and arguably highest in the bands presently used by the leading Indian mobile firms.
Reliance Communications could have to discontinue services in up to seven circles, if it can’t win back its spectrum. The auction will affect licenses affecting as much as 75 percent of Idea’s revenues.
Vodafone faces serious pressure in six circles. Bharti Airtel has to renew licenses for six circles as well.
Some might note that while the government will benefit from the revenue, mobile service providers face the problem of overpaying for spectrum, something that has happened before.
It can be argued that the high cost of spectrum in the 2010 auction stunted the growth of 3G and mobile broadband services in India.
European mobile service providers well remember the pain of overpaying for 3G spectrum licenses. That bout of irrational exuberance nearly bankrupted several major European carriers.
In 900 MHz band, there is a lull as operators are bidding in lower vale spectrum like 1800 MHz band. 800 MHz and 1800 MHz band are witnessing aggressive bidding, Financial Express reports.
Given the compelling need to reacquire spectrum they already are using, high prices are not an unexpected result.