Will Lower Spectrum Charges Make Biggest Spectrum Auction Attractive ?

Spectrum Charges Biggest Auction India 2016The Government has announced that Spectrum Usage Charge (SUC) will be a weighted average rate of individual rates for different bands, including 3% for spectrum won in the 2016 auction. The change is positive for Bharti, since telcos having 2300MHz that carries just 1% rate will benefit from its inclusion in the weighted average. Reliance Jio will have the lowest SUC, having the highest proportion of 2300MHz.

Blended SUC will be: 1) at minimum rate of 3% and 2) based on a minimum amount that is calculated as follows: After excluding the 2300MHz won earlier (which had 1% rate), the rest of the spectrum would be included in calculating a weighted average, and this is applied to FY16 revenues. The weighted average described above will come from – 3% SUC on spectrum won in the next auction (including 2300MHz), 5% SUC on spectrum won in 2014 and 2015 auctions and the old escalating SUC on admin spectrum.

Based on the above, back of the envelope calculations suggest that if Airtel wins 5MHz pan-India spectrum for Rs150bn in 2016 auctions, its SUC would come down from 4.75% to 3.60%. The reduction in SUC will be lower for Idea and Vodafone since they do not have 2300Mhz spectrum. The bigger question is will this reduction in SUC lure Telcos for the Mega 2016 Spectrum Auction ? We think the reaction will be mixed with 700Mhz Spectrum auction heading to be a damp squib while other bands will attract selective bidding interest based on Operators strategy.

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