A steep cut in Delhi Circle’s reserve price makes it an attractive circle for new licensees. Our framework for new licensees suggests NPV remains positive till 50% higher spectrum prices. IDEA without 3G spectrum could be an aggressive bidder in Delhi. Spectrum prices may rise more than 50%, if incumbents want to deny IDEA 3G spectrum in Delhi.
A significantly lower reserve price compared to the market size, indicated by the high industry revenue / reserve price for the 1,800MHz and 900MHz bands. This makes the business case viable for new licensees such as Uninor (promoted by Telenor) and Videocon(backed by Reliance Jio) in the Delhi circle. Operations in adjoining circles for Uninor [UP (W), UP (E) and Bihar] and Videocon (Punjab, Haryana and Bihar) creates more incentive to acquire spectrum in the Delhi circle.
There are limited potential opportunities for acquisition of spectrum through M&A in the Delhi circle. Idea Cellular does not have 3G presence in the Delhi circle. Globally, an ecosystem exists to provide 3G services in the 900MHz band. Also, IDEA already has operations in the Delhi circle. Hence, the NPV for IDEA is likely to be even higher than that for new licensees such as Uninor and Videocon.
For both incumbents— Airtel and Vodafone—Delhi is among their high revenue generating circles and both have 3G presence in the circle. Hence, incumbents are likely to be aggressive in retaining spectrum and avoiding the risk of additional competition in 3G services.
5 Bidders in Fray for Delhi Telecom Spectrum
As outlined above, an auction of the 900MHz band in Delhi may receive bids from five bidders, namely Airtel, Vodafone, Idea Cellular, Uninor and Videocon. The total spectrum to be auctioned is 16MHz, while the maximum winning bidders can be three, with each bidder winning 5MHz (the minimum quantity stipulated for a new licensee). Using the Average Weighted Price Model to eliminate participants, we expect it to rise to the extent the new licensees find the business case unviable.
Update on 16-Jan-2014
Videocon has withdrawn their Bid and Reliance Jio Infocomm will go ahead instead of using the Proxy arrangement.