Strategic Bidding in the 2024 Spectrum Auction: Navigating the Dynamics of India's Telecom Industry
The upcoming Indian spectrum auction's outcome will largely depend on RJIO's bid for the 800 MHz band and Bharti's interest in the 900 MHz spectrum.
Yesterday, I discussed the strategic approach of VI for the forthcoming spectrum auctions scheduled for June 4, 2024. Today, I will broaden the scope of this analysis to include multiple operators, exploring each one’s strategy in alignment with their core business objectives: a) Reducing Spectrum Usage Charges; and b) Enhancing Existing Capacity. This detailed examination aims to provide readers with a comprehensive perspective, offering a bird’s-eye view of the potential dynamics at play in the upcoming spectrum auctions.
Objective No 1: Driving Down Spectrum Usage Charges
The chart below illustrates the spectrum usage charges (SUC) for all three bidders—RJIO, Bharti, and VI—excluding Microwave Backbone, Microwave Access, and E-Band charges.
It is evident from the data that both Bharti and RJIO currently incur the lowest feasible SUC in their respective bands. Given this, there is little incentive for them to acquire additional spectrum in the higher frequency bands, particularly the 26 GHz band, as it would offer diminishing returns. The mechanism for calculating SUC on account of Microwave Backbone and E-Band is distinct and not reflected in this data. Conversely, as outlined in my previous note, VI's strategy is to purchase more spectrum in the 26 GHz band to reduce its SUC, distinguishing its approach from Bharti and RJIO. Detailed Calculations sheets of SUC for Bharti, RJIO and VI are embedded below.
Bharti’s SUC Calculation
The chart below captures the SUC calculation based on DOT’s order dated 21st June 2022 for Bharti.
The % SUC for Bharti after 2022 auction got driven down from 3.08% to 0.31%.
RJIO’s SUC Calculation
The chart below captures the SUC calculation based on DOT’s order dated 21st June 2022 for RJIO.
The % SUC for RJIO after 2022 auction got driven down from 2.92% to 0.19%.
VI’s SUC Calculation
The chart below captures the SUC calculation based on DOT’s order dated 21st June 2022 for VI.
The % SUC for VI after 2022 auction got driven down from 3.62% to 0.80%.
Objective No. 2: Boosting Existing Capacity
To properly assess this objective, it's crucial to compare each operator's current spectrum holdings against the spectrum available in the upcoming auction. This comparison highlights potential capacity constraints and identifies opportunities for enhancing capacity. Our focus begins with Bharti, as we examine its strategy across various spectrum bands.
Bharti’s Bidding Matrix
The chart above delineates Bharti's overall bidding strategy across all bands available for auction. Key areas of interest for Bharti are highlighted with dark red borders, indicating the specific bands and circles where Bharti might actively bid. The amounts of spectrum of particular interest are noted with a yellow background.
Bharti Band by Band Analysis:
26 GHz & 3.5 GHz: Bharti currently holds sufficient spectrum in these bands and is unlikely to acquire additional allocations, opting instead to pass on these opportunities.
2.5 GHz: Bharti will show no interest in this band and will not participate in bidding for it.
2.3 GHz: In six circles, Bharti could enhance its capacity by acquiring an additional 10 MHz, increasing its holdings from 30 MHz to 40 MHz.
2.1 GHz & 1.8 GHz: With substantial holdings already in these bands, Bharti may refrain from further acquisitions.
900 MHz: Bharti may pursue acquisitions in circles where it seeks to consolidate spectrum blocks to standard sizes of 5, 10, and 15 MHz. This is especially pertinent in circles such as Bihar, Orissa, UPW, and West Bengal, where Bharti has recently lost spectrum due to expirations.
800 MHz: Due to specific auction rules, Bharti is precluded from bidding in this band.
This comprehensive strategy outlines Bharti's targeted approach in the upcoming auction, aimed at consolidating and enhancing its spectrum efficiency. Total outflow for Bharti will be Rs 11,512 Cr at the Reserve Price.
RJIO's Bidding Matrix
The chart above outlines RJIO's overall bidding strategy across all bands available for auction. The 800 MHz band, highlighted with dark red borders, is the only band where RJIO might consider placing bids. Specific spectrum interests within this band are marked with a yellow background.
RJIO Band by Band Analysis:
26 GHz & 3.5 GHz: RJIO already possesses ample spectrum in these bands and will not seek additional allocations, opting to bypass these opportunities.
2.5 GHz: RJIO has no interest in this band and will abstain from bidding.
2.3 GHz: RJIO already holds a Pan India 40 MHz across all circles and will not participate in bidding for this band.
2.1 GHz & 1.8 GHz: RJIO has substantial holdings in the 1.8 GHz band and shows no interest in the 2.1 GHz band.
900 MHz: RJIO will not engage in bidding for this band.
800 MHz: Although RJIO might consider bidding to enhance its 4G capacity in this band, the strategic utility of such a move is questionable. The 800 MHz band, not being optimal for 5G NR (New Radio), might not significantly aid in 5G deployment, especially as RJIO shifts towards more 5G-centric operations requiring higher capacity in the 700 MHz band. Additionally, attempting to integrate lower frequency bands for 5G could potentially reduce overall coverage due to diplexer losses.
Should RJIO decide to pursue the 800 MHz spectrum, the estimated total outflow would be approximately Rs 18,320 Crore at the reserve price.
VI's Bidding Matrix
The chart above outlines VI's overall bidding strategy for the upcoming spectrum auction. As previously noted, VI's Earnest Money Deposit (EMD) limits its bidding capacity primarily to the 26 GHz band. This band is highlighted in the chart with a red rectangle, and the specific quantum of spectrum VI is likely to bid on is indicated with yellow text.
VI Band by Band Analysis:
26 GHz Band: As detailed in my earlier notes, VI's strategic focus in this auction should be on the 26 GHz band to effectively reduce its Spectrum Usage Charges (SUC) from 0.8% to 0.45%. This move is aimed at optimizing operational costs and enhancing spectrum efficiency.
Other Bands: Due to limited EMD, VI does not possess the financial capability to bid on additional spectrum bands and will therefore not participate in those auctions.
Should VI proceed with bidding for the 26 GHz spectrum, the estimated total financial commitment would be approximately Rs 2612.5 Crore at the reserve price.
Conclusion
This analysis has revealed that the major Indian telecom operators—VI, Bharti, and RJIO—are adopting a conservative approach to the upcoming spectrum auctions, aiming for strategic enhancements rather than extensive expansion. The anticipated combined outflow from these operators is Rs 32,444.5 Crore, which contrasts sharply with the Rs 96,000 Crore of spectrum available at reserve prices, highlighting a broader trend of caution in the sector.
A critical factor in this conservative spending is RJIO's decision regarding the 800 MHz band. If RJIO opts out of bidding in this band, the total expenditure by all operators could plummet to just Rs 14,000 Crore, representing a mere 14% of the total spectrum available at reserve prices. This substantial reduction in spending underscores the strategic focus of operators on optimizing existing resources amidst evolving market demands and technological shifts.
The potential reallocation of 5G to the 800 MHz band and 4G to the underdeveloped 700 MHz ecosystem carries significant risks, including the possibility of losing subscribers unable to afford compatible handsets in a price-sensitive market. This strategy might not only yield limited benefits but could also weaken market competitiveness by reducing service uptake among lower-end 4G subscribers.
As the auction date nears, the delicate balance between immediate operational needs and long-term strategic goals will be pivotal in shaping not only the outcomes of the auction but also the future trajectory of India's telecom industry.