Videocon Makes Killing Selling 4G-LTE Spectrum to Idea in Gujarat / UP-West

Videocon TelecomIdea Cellular has announced purchase of 5MHz paired spectrum in the 1800MHz band in Gujarat and UP (West) circles from Videocon Telecom for INR 33.1bn. This purchase will enable Idea to launch 4G in these 2 circles (currently contribute 14.4% to revenue). Idea is the No. 1 operator by revenue market share in UP (West) and No. 2 in Gujarat, which may have necessitated 4G services to ensure that existing customers do not migrate to competition offering 4G services.

Videocon had bought this spectrum in the 2012 auction at mere Rs 1329 Crore.

Idea has now ring-fenced its top-8 established circles (72% revenue contribution) with full range of 2G, 3G and 4G mobile services. This transaction takes Idea’s 4G footprint to 12 circles, covering >75% of Idea’s current revenues and likely entire mobile EBITDA. Further, Idea now emerges as #2 telco (on par with Bharti) in terms of FDD-1800 LTE spectrum footprint, behind 4G leader Reliance Jio with 16 circles (18 including non-contiguous spectrum). In fact, we are surprised that Vodafone did not pick up 1800 spectrum in Gujarat; Voda is #1 operator in Guj with 39% revenue market share, while Idea is #2 with a 23% RMS.

This spectrum also falls under the deferred payment structure, so interest expenses and amortization too will rise. So does Videocon receive payments for the remaining period of the validity of the spectrum ? While the amount of consideration mentioned is ~INR33bn, we note the two parties are currently going through a due diligence exercise, which could lead to some fine-tuning.

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