See limited participation in 700 Mhz spectrum auction: Fitch

The Telecom Regulatory Authority of India (TRAI) on Wednesday suggested auctioning the 700 Mhz spectrum — considered the best for offering high speed broadband services — at a pan-India base price of Rs 11,485 crore per Mhz. This is the highest rate for any telecom frequency band.

Nitin Soni, director, Asia-Pacific corporate ratings at Fitch Ratings says the reserve price is exorbitant and telcos already have stretched balance sheets. He further adds that while 700 MHz is a nice spectrum to have, it is not a must have, and hence participation in this round of auction may be limited.Below is the transcript of Nitin Soni’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What did you make of the reserve price of the 700 megahertz? Do you think that this squeezes an already beleaguered industry or do you think it is justified in the long-term?A: At Fitch Ratings, we believe that the price announced by TRAI is quite significant. You can say it is exorbitant and because the price at 700 is about four times of 1,800 megahertz and it is about two times of 800 megahertz, which is quite a significant jump from the last auctions we had seen. As you know, most of the telecom companies including incumbents have stretched balance sheets -- Idea has the highest leverage in the industry, even Jio which has invested about USD 15 billion -- will find it hard know to justify additional investment in the 700 megahertz.The important point to note here is that the last auction was about retaining the existing spectrum and it was a question of survival, that is why we saw most of the telecom companies combined bidding for about USD 17.7 billion. However, this time 700 will be a nice to have a spectrum, but it is not a must have, because most of the telecom companies already have spectrum to roll out the 4G services and the existing 3G services. So, in our view, there will be limited participation for the 700 megahertz spectrum if it comes in this calendar year.Sonia: As you rightly pointed out, most of them have already acquired most of the necessary spectrum needed. So, for Bharti and Idea particularly, do you expect them to selectively acquire spectrum either in the 2,100 megahertz band or any other band at all?A: Bharti could find some spectrum in 2,100 megahertz or to expand their capacity on 4G services. However, now when the trading and sharing is allowed, management will think that is it better to buy the existing spectrum from some of the smaller telecom companies, which want to exit from the industry including Airtel and maybe Tata and others or whether they want to bid in the auction and unnecessarily raise the price during the bidding. So, it is not an easy decision and that is why we think that there will be limited participation. They will hold back themselves to bid an exorbitant amount in the auctions this time.Latha: If the bids go indeed at the reserve price that has been recommended, do you think it will be a cartelised no bid on 700 megahertz or do you think one or two guys with big pockets may want to invest for the long-term?A: Technology is changing so fast, that it is very difficult to justify such a significant amount to be spent on this kind of spectrum and 4G is here for at least the next five years. So, who knows after that 5G will start and you might get cheaper equipments to roll out such services at a higher bandwidth.So, it is very difficult to justify a business case where you invest in a lower bandwidth spectrum at 700 saying that this will have a better in-building coverage and then you never know that the equipments are becoming cheaper for higher bandwidths as well.So, in our view, it will be a tough call for most of the telecom companies, which already have so much of debt on their balance sheets to invest further on this kind of spectrum. Even Jio has sufficient spectrum now with the sharing with Reliance Communications, they have pan-India access to 800 and 850 megahertz, so they are ready to launch 4G. So, why invest more on 700 when they do not have even a single rupee of revenue yet.