Why Next Spectrum Auction May Fail Despite Cheaper Spectrum

As India's debt-ridden wireless carriers fight a bruising tariff war, the telecom regulator suggested a 20-59 percent lower reserve price for the next spectrum sale. That may not work.

Lowering the reserve prices is a move in the right direction, but they are still very high compared to any other parts of the world, said Sanjay Kapoor, former chief executive officer of Bharti Airtel Ltd., India's largest telecom operator. Balance sheets are stressed and the scope to increase the leverage is limited, he said. “Under these circumstances the demand for spectrum bidding could be subdued with limited players having a business case to bid.”

The Telecom Regulatory Authority of India put up prices for nine bands: 700, 800, 900, 1,800, 2,100, 2,300, 2,500, 3,300-3400 and 3,400-3,600 megahertz, according to information uploaded on its website. The last two are likely to emerge as primary airwaves to offer faster fifth-generation services—these bands will be offered for the first time.

The government will put up 700 MHz spectrum up for sale for the second time after it remained unsold in 2016 due to a high reserve price. Only 60 percent of all airwaves on offer could be sold then. The 2017 round was deferred because of the failing financial health of the industry.

Aggressive bidding for airwaves after the Supreme Court mandated auctions in 2012 had left carriers saddled with debt. What made it worse was the cheap data onslaught by billionaire Mukesh Ambani's Reliance Jio Infocomm Ltd., hurting profits and forcing rivals to either merge or exit.

In the last one year, Aircel Ltd. filed for bankruptcy, Reliance Communications Ltd. sold its assets to Reliance Jio Infocomm Ltd., while Tata Teleservices Ltd. and Telenor Communications Pvt. Ltd. sold their assets to Bharti Airtel. Vodafone India Ltd. and Idea Cellular Ltd. decided to merge and await the final approval from National Company Law Tribunal.

In 2016, seven of 11 operators had qualified for the auction. Only three private and two state-owned remain in business now. For the incumbents, debt and leverage increased.

That's why Mahesh Uppal, a telecom analyst, also expects the demand for spectrum to be lukewarm. The prices are still high given the financial condition of the sector, he said. “In fact, I hope that the government will postpone the auction until there is clear indication from the main players of their readiness.”