Telenor, Vodafone, Tata keen on 700 MHz spectrum; Jio, Bharti, Idea defensive

Maximum cell sizes of various bands (source: US Justice Dept)
Maximum cell sizes of various bands (source: US Justice Dept)

For years, India’s telecom operators have taken the government repeatedly to task over ‘hoarding’ spectrum, not releasing it on time etc.. However, with recent auctions giving some of them a competitive advantage, many of these operators are now asking the government to postpone the upcoming 700 MHz auctions – slated to be the biggest India will ever see.

As part of the pre-auction consultation process conducted by the telecom regulatory authority (TRAI), Bharti Airtel, Idea Cellular and Reliance Jio have asked the government not to sell 700 MHz airwaves right now, while spectrum-starved operators — Telenor, Vodafone and Tata Teleservices — are more than willing to take it off the government’s hands.

Besides locking in their current spectrum advantaged position, the unusual request by Idea Cellular, Bharti Airtel and Reliance Jio has to be seen in the context of the high debt levels that these companies have developed over the last three years.

PRESERVING THE SPECTRUM EDGE

The most comfortable, and competitively advantaged operator, as far as 4G spectrum in India is concerned, is Reliance Jio. It has pan-India 4G spectrum, and quite a lot of it. It is expected that it would take around four years or so before Jio feels the need for adding new spectrum except in the congestion-prone Delhi, Mumbai and Kolkata circles.

Bharti Airtel, which also has a strong edge as far as LTE spectrum is concerned, is also keen to ensure that the 700 MHz band is not sold right now. Airtel, like Jio, has spectrum in the 2300 Mhz band in Mumbai and Delhi and has decent amounts of 4G airwaves in all circles except UP, Bihar, Gujarat, Assam and Jammu & Kashmir.

The third operator opposing the sale of 700 Mhz spectrum is Idea Cellular.

Idea’s reasons for doing so are less obvious, given that it has 4G spectrum only 12 out of the 22 circles in India. However, what is missed in this numeric tally is that the 12 circles account for 75% of Idea’s revenue. The other ten circles mostly smaller states or places where Idea has not found much headway in expanding its business. As far as it is concerned, it has enough spectrum for 3-4 years and would not like to see its competitive edge erode due to the entry of a new operator.

And the company was honest enough to admit before the TRAI that its primary reason for opposing 700 MHz auction was financial.

“The 700 MHz band should be put to auction only after at least 3-­4 years. The Authority is fully aware that existing spectrum is still in process of being fully utilized and operators are planning roll­outs in the recently acquired spectrum. Any new auction in 700 MHz, would clearly divert crucial capex towards acquiring 700 MHz band. This is clearly avoidable, for a country which plans to bring broadband to nook and corner of the country as it will doubtlessly result in setting back the vision of Digital India by atleast 3-­4 years.”

This appeared more direct than the reasoning of others, who urged the government not to sell 700 Mhz as the winner will not be able to launch services because of there being only a couple of hundred devices that work on this band.

“The possibility of quick adoption of APT 700 MHz band by the masses in India appears to be a bit incongruous as it lacks the device ecosystem necessary for its proliferation,” Bharti Airtel said. “Out of 3,745 LTE user-devices only 214 supports APT 700 (Band 28) i.e. a mere 5.7% of the total LTE user devices,” it added.

Similarly, Jio said: “For availability of affordable devices and overall vendor ecosystem, it might be sensible to wait for major international markets/manufacturers like China and the U.S. to act on this first So that Synergies could be used to achieve efficient price points on device as well as infrastructure costs by using similar technology. Therefore logically it would be more viable and economical to auction spectrum in 700 MHz band once the ecosystem is developed and technology choices are made at international level so that vital investments are not lost in experimentation leading to non-affordable devices and network infrastructure.”

However, the tone adopted by the other three operators — Vodafone, Tata Teleservices and Telenor, seemed to indicate that they were ready to launch a network even if there were only 214 phones and dongle models to work with.

In fact, the argument about lack of equipment would be very hard to make due to the auction of other hands that have even fewer models available for them, particularly 2.5 GHz. Similarly, band 40 — which has been used by Airtel and Reliance Jio to roll-out their 4G networks — has only 203 phones that support it globally (according to GSMArena.com). In India, that number is less than 20. When Airtel launched its 4G network in cities like Bangalore, there was just one phone model in India that supported it — the iPhone, and there was probably none when the spectrum was auctioned.

Telenor also pointed out that only if the auctions were conducted now could the networks be ready when the number of phones reached their thousands. “The device ecosystem for APT700 Band 28 is developing at a good pace. Currently, 214 devices are available in this band globally, assuming that the auctions are concluded in the first or second quarter 2016 and the allocations of spectrum happen by the third or fourth quarter 2016, Telecom Service Providers in India will be ready with their 700 MHz networks by mid 2017 and there will be big momentum in APT700 eco system by that time,” it said.

The spectrum is important as it can be easily used to reach out to rural masses at very low costs, unlike existing 4G spectrum. “700MHz spectrum is a band that is specifically suited for rural broadband and can be very pivotal in achieving the national objectives of the Government with regard to rural connectivity and the achievement of the Digital India vision,” said Vodafone.

The British firm is seen as the one most likely to buy spectrum in this band due to two factors — availability of cash from its parent, and its position as No. 5 in India in terms of 4G spectrum.

Despite being the country’s second biggest telco, Vodafone has 4G-suitable spectrum in just 5 out of 22 circles in India and is behind Idea Cellular and even Reliance Communications — which is in the process of refarming its CDMA spectrum to LTE — in this matter.

However, Vodafone can also use its ‘clean slate’ to its advantage as it can buy 700 MHz spectrum across India, making its network much simpler than those of others. Jio, for example, has sewn together its LTE network using three different bands — 800 MHz, 1800 MHz and 2300 MHz. Adding 700 MHz to the equation would make the network one of the most complex in the world as far as the radio side is concerned.

Vodafone can also use its current quantum of 1800 MHz 4G spectrum to increase the capacity of its 700 MHz network as its 1800 holding is located in places where the quantum of traffic is likely to be very high, such as Mumbai, Delhi, Kerala, Kolkata and Karntaka.

Norway-based Telenor, meanwhile, seems to have its own plans of making a rural-focused 4G network using the 700 MHz band. It suggested that one slot in the band should be preserved for a rural-focused network.

“For the new 700 band, specific rural rollout may be attached to one block of 5Mhz in 700 band with reserve price of this block set at 25% of reserve price set for other blocks,” it suggested.

VALUATION OF 700 MHz BAND

None of the three ‘interested’ candidates in 700 MHz auction favored the suggestion that the reserve price of the auction should be made higher than that of the 800 MHz band that was auctioned earlier this year.

Tata Teleservices recommended that the valuation of 700 MHz band should be same as that of 800 MHz band “as both (come) with similar technical efficiencies and eco system.” However, Vodafone said the reserve prices may be set at “no more than 2 times 2300 MHz (LTE spectrum) reserve prices on a paired MHz basis.”

It said 700MHz reserve prices should not be derived on the basis of 900MHz bands prices as the latter was inflated due to extension risks faced by operators and limited supply. “Neither of these factors is applicable to the 700MHz band,” it said.

The sentiment was reflected by Telenor too. “The Auction Discovered Prices in India are at the moment too high. Linking the value of 700 MHz to 900 and 1800 MHz prices includes the inherent risk of overestimating the value of 700 MHz . In view of above, it is recommended that while doing valuation of 700 MHz spectrum should not be derived basis 900 and 1800 spectrum,” it added.
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