Idea Cellular Ltd has become the first operator in India to buy spectrum under recently unveiled trading guidelines.
The company said it has agreed with Videocon Telecommunications Limited for acquiring right to use spectrum under govt guidelines dated October 12, 2015, for the areas of Gujarat and Uttar Pradesh (West).
“This agreement for Idea’s two Leadership telecom circles is for a quantum of 2×5 MHz contiguous blocks of 1800 MHz in each service area, with right to use spectrum until December 2032, which Idea Cellular intends to use for deployment of 4G (LTE) services in these service areas,” the company said.
The transaction will buttress Idea’s position as potentially the strongest 4G player in India after Reliance Jio and Bharti Airtel. Idea has twice as much 4G spectrum compared to Vodafone.
The transaction will be effective only after completion of the due diligence related to above spectrum, and written confirmation by DoT on the transfer of right to use spectrum to Idea Cellular, the Aditya Birla Group firm said.
Idea has had a somewhat colorful history with the DoT, with the latter withholding final permission for the company’s purchase of Spice Telecom for several years citing technical issues.
“Both Companies intend to jointly intimate the ‘Department of Telecommunications’ for trading the right to use these spectrum blocks as per the Guidelines, after completion of certain aspects of due diligence. The effective date of spectrum trading will not be earlier than 45 days from the date of joint intimation, as defined in Guidelines,” the companies said.
The new transaction will help the telecom operator launch 4G services in those two regions.
The aggregate consideration for the right to use spectrum transaction is Rs 3,310 crores, subject to adjustment based on the due diligence exercise.
Along with the right to use spectrum, Idea will also be taking over the outstanding ‘Deferred Payment Liability’ of Videocon Telecommunications Ltd., payable to the DoT, in respect of the spectrum being acquired for service areas of Gujarat and Uttar Pradesh (West) in the November 2012 Access Spectrum auction.
The amount of outstanding ‘Deferred Payment Liability’ after repayment of first instalment on December 1, 2015 by Seller will be Rs 482.26 crores and this amount plus interest accrued thereon till the date of closing of transaction (as contemplated in the said agreement) will be reduced from the payment of the aggregate consideration of Rs 3,310 crores payable for right to use the spectrum, Idea said.
Idea intends to use this acquired spectrum for launch of 4G (LTE) Mobile Broadband Services in the service areas of Gujarat and Uttar Pradesh (West).
“With this spectrum trading arrangement, Idea’s 4G (LTE) spectrum footprint will expand to 12 service areas covering over 75% of Idea’s current revenue and over 72% of existing 170 million quality subscribers on VLR.”
These 12 circles currently contribute 60% of the Indian telecom industry mobility revenues.
“After completion of this transaction, Idea would have full range of Mobility Services across 2G (GSM), 3G (HSPA) and 4G (LTE) technologies in all of its 8 leadership markets of Maharashtra & Goa, Kerala, Andhra Pradesh & Telengana, Madhya Pradesh & Chhattisgarh, Haryana, Punjab, Gujarat and Uttar Pradesh (West). As per the latest TRAI Q2FY16 release in these 8 Telecom service areas, Idea’s combined Revenue Market Share is 30.3% and Subscriber Market Share (on VLR) is 28.6%, a clear No. 1 and dominant Market position,” the company said.
Idea said it is on track to launch its 4G LTE services in 750 towns across existing 10 4G circles by first half of calendar year 2016, and after the completion of this transaction, plans to introduce 4G services in Calendar Year 2016 in Gujarat and Uttar Pradesh (West) Telecom service areas.
The move can be seen as a response to the threat posed by Reliance Jio, the telecom arm of Reliance Industries, to Idea — which is the third biggest operator in India, but could be pushed to the fourth place with Jio’s launch.
As per the present spectrum allocation in 1800 MHz and declared usage, Idea will be the first and only operator with liberalised 5MHz contiguous spectrum to launch 4G (LTE) services in the service area of Haryana and in Uttar Pradesh (West).
However, this could change as other operators could also buy spectrum from competitors.
The present deal is likely to be just the first of several to be announced in the coming days and involving parties like Aircel Cellular, Tata DoCoMo, Bharti Airtel and Vodafone India.
“The company is confident that with this expansion of its spectrum portfolio, strong customer affinity of over 170 million customers, robust cash flows and excellent track record of execution, the brand will be able to profitably monetise the opportunities in mobile broadband across 3G and 4G platforms and emerge even stronger,” Idea said.
Idea’s strongest asset has been its management team and promoter. Unlike Vodafone, Idea has been more willing to cut prices to fuel growth. On the other hand, Vodafone and Bharti Airtel have relied on marketing and advertising to drive growth.
As a result, Idea has acquired a reputation for offering friendlier tariffs and products compared to the other two.