With about 2355MHz of downlink spectrum being available across 22 circles that make up the country's telecoms map, this year's Indian auction was branded as a super auction — indeed, initial forecasts predicted auction proceeds in the range of INR1.5 - 5 trillion (the equivalent of up to EUR67 billion).
However, after just five days and 31 rounds of bidding, the auction ended with total prices summing to 'only' INR658 billion (about EUR8.8 billion). In this article, we look at some of the main insights we have gained from analysing the auction results in more detail over the course of the last days.
1. Spectrum still costs a lot in the big cities
Despite a disappointing headline revenue figure relative to expectations prior to the auction (noting that overall revenues of EUR8.8 billion will still rank this auction firmly towards the top of the list of revenue-generating auctions worldwide), some regions still saw spectrum selling for extremely high prices. Spectrum demand within the metro cities is particularly strong. As seen in the chart below, 1800MHz sold for over EUR1.20 per MHz per person in Mumbai and Delhi. This price is extremely high when compared to other countries, for example it is 4x higher than the prices paid in Germany last year — even before considering the relative wealth levels of the countries.
2. There was limited appetite to increase 3G footprints
Before the auction, it seemed there was sufficient new supply of 2100MHz spectrum to allow operators to create pan-India 3G footprints. Whilst there is a move towards mobile data demand, the widespread adoption of 4G handsets will take a few years to materials — hence, we would expect 3G to remain an important proposition for operators looking to monetise the market transition from voice to data services.
However, as seen in the chart below, the three large incumbents decided to only add 1-3 new circles each, whilst no new spectrum was acquired by either RJio or RCom. This may imply that the market is attempting to shift straight to 4G — with almost 75% of Indian consumers still on 2G services, this may be quite an ambitious undertaking. Or, it may just point to the fact that prices for 3G spectrum did not reflect the anticipated return on investment and may have to come down quickly for this approach to change (see here for our view on the reasons for spectrum remaining unsold — especially in the 700MHz and 2100MHz bands).
3. Idea and Vodafone display ambition for increased pan-Indian data capability
Prior to this auction, both Idea and Vodafone had a limited number of circles within which they had significant (at least 30MHz) spectrum holdings — suitable for delivering high-quality mobile data services whilst maintaining 2G voice quality.
The purchasing patterns in the auction displayed an ambition to increase the number of circles within which the operators have sufficient spectrum to compete in the data market. Post-auction, both now have 17 circles (of 22 in total) where they have a sizable spectrum portfolio, suitable to meet a change in subscriber demand (and compete adequately with Reliance Jio). With the size of the Indian market (and its circles) initially leading to a fragmentation of the mobile market, it seems that operators are now looking towards pan-Indian strategies to support future growth.
4. Operators focused on one of the available high-frequency bands
Whilst all large operators have historically shown demand for spectrum in the 800/900MHz, 1800MHz and 2100MHz bands, the demand pattern was different in the higher-frequency bands (2300HMz and 2500MHz). As shown in the chart below, Vodafone focussed on 2500MHz, whilst Airtel and RJio preferred the 2300MHz. Only Idea showed any willingness to acquire spectrum across both bands. It is likely that focussing on fewer frequency bands facilitates network operations (and reduces costs) and also the introduction of cheaper 4G handsets for subscribers (noting that supporting multiple bands in a device increases the cost).
5. Tata triggered the main instance of competitive bidding
Observing the market and press responses to the auction, one of the biggest surprises may have in fact been Tata's aggressive bidding for 1800MHz spectrum in three large markets. Especially in Mumbai, Tata's bidding caused the most competitive bidding in the auction and led to the largest increment in final prices relative to the initial reserve prices (prices increased by more than INR9.5 billion, or EUR0.51/MHz/pop).
The figure below provides an overview of price increases in this auction relative to reserve prices. Of the 126 circle / band combinations, we only observed increases above reserve prices in 12 of these, with a number of the significant increases being driven by Reliance Jio's desire to increase its 800MHz portfolio. Whilst the high reserve prices created a very high 'floor' for spectrum prices (and may have been the primary cause for a lot of spectrum remaining unsold), it is the number of bidders competing for spectrum that determines where the auction ends — and Tata's presence clearly impacted competitiveness in Mumbai.
Posted: 18 October 2016
More on the Indian auction
All information provided in this article is based on Aetha's detailed analysis of the Indian spectrum auction (Aetha Indian Auction Analysis) and our extensive in-house database of spectrum fees. If you are interested in purchasing the underlying spreadsheets and supporting information or would like to discuss any other issues with respect to the management or valuation of spectrum, please do get in touch with us.