Every time spectrum comes for auction in India, uncertainty increases for operators. The spectrum auction earlier this year saw an unexpected contest for 1,800 spectrum as the entry of pure 4G players required incumbent operators to add 4G spectrum selectively. Since then, the most interesting trend has been robust data revenue growth; while this is positive, it raises the need for additional capacity spectrum.
So far, operators have been highlighting the need to add data footprint but in the markets where they have c5MHz of spectrum, it will be important for them to get to 10MHz sooner than later (next 2 years) to accommodate mobile data growth.
Airtel and Idea face auction in some of their key markets, Idea has more exposure in the upcoming auctions versus Airtel. This, in our view, implies that Idea is likely to focus more in in retaining spectrum in existing markets and on the other hand, the top two players Airtel and Vodafone could look at adding more spectrum in the 900 band.
5MHz Spectrum for Voice + 5MHz Spectrum for Mobile Broadband Data
Data services consume much more spectrum than voice services and hence operators will need more spectrum to accommodate data growth /users / usage. If we look at the current spectrum allocation of the incumbent operators, the average spectrum holding is 5Mhz in every circle and clearly they will need an additional 5MHz to achieve benefits of scale from a 2-3 year perspective. It is in this context that upcoming spectrum auctions will be critical as one hand incumbent operators will attempt to defend their existing 900 spectrum allocations and at the same time try and add more of 900 in existing markets or markets where they do not have 5MHz of spectrum in the 2.1GHz band required for 3G Mobile Data Services.
One key characteristic of the Indian Department of Telecom under the Corrupt Congress regime is that they never provided for a spectrum road-map, which has been a long pending demand. With operators having a clear case for additional spectrum in existing data markets, the lack of visibility prevents the operators from waiting for the release of additional spectrum as with such an approach, they run the risk of losing out on data growth. TRAI auction recommendations suggest that the government should make available spectrum in 2,100MHz band, 700 bands and 1,800 band in the upcoming auctions. Even if 700MHz is not auctioned, at least a simultaneous 900, 1800 and 2100 band auction must take place.