The government’s auction of 900 Mhz and 1,800 Mhz spectrum has gotten off to a good start. Even in an industry that faces strong consolidation headwinds, the government has got bids of Rs 39,300 crore, Rs 45,000 crore and Rs 50,000 crore on days one, two and three, respectively.
This compares well with the previous two rounds of bidding that took place in 2010 and 2012 that turned out to be damp squibs.
Here are some reasons why the auctions have largely been successful this time.
Delhi/Mumbai licence expiry
The licenses of telecom companies that hold the coveted 900 Mhz spectrum in cities such as Mumbai and Delhi were due to expire in November.
As a result, these companies had no other option but to bid aggressively to hold on to the millions of subscribers they had in these prime cities.
Not surprisingly, auctions for the scarce 900 Mhz band (in which only 45 Mhz was put up on the block compared to 385 Mhz in the 1800 band) were bid up several times the base price.
The 900 Mhz wavelength is also considered more cost-effective than the 1800 Mhz band.
Better pricing
Compared to the 2012 auctions, when the government faced flak for what was widely perceived to be exorbitant pricing, most industry players had said pricing was rational this time around.
“The reserve price is reasonable and will encourage bidding,” Rajan Matthews, director general, Cellular Operators Association of India, told CNBC-TV18 in an interview in December.
Rel Jio entry
The entry of Mukesh Ambani-backed Reliance Jio also changed things a bit. Reliance was expected to bid aggressively for the 1800 Mhz band, which would help augment its to-be-launched 4G services, a sentiment echoed by former Airtel CEO Sanjay Kapoor here.
Lesser regulatory uncertainty
A week prior to the auction, the government issued rules laying out clear rules for spectrum usage charges.
Large telecom companies had been complaining against the “unfair” nature of the SUC’s previous structure -- which charged different fees for companies of different sizes -- and this ruling helped give the industry further clarity in terms of what it could expect by way of revenues going into the auction.
Also, during the previous two rounds, regulatory uncertainty arising from the cancelled licenses in the wake of the 2G scam was high, impacting sentiment.
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