Idea Cellular has entered into agreement with Videocon Telecommunications under the spectrum trading guidelines in 2 circles- Gujarat and Uttar Pradesh (West). This agreement is for 2x5 MHz contiguous blocks of 1800 MHz for 4G deployment, with right to use spectrum until Dec-2032.
Idea's acquisition price of Rs. 33.1bn is 96% premium to the latest spectrum price of Rs. 16.9bn and 149% premium to the Rs 13.3bn amount Videocon paid in 2012 for acquiring this spectrum. Idea's revenue market share in Gujarat/UP (W) is 22%/34% respectively and they contribute 7.5%/8% to Idea's total revenues.
We think that the large premium may be due to the limited amount of available 4G spectrum in these circles and Idea's intention to fortify its spectrum holdings in its leadership circles. The higher amount paid also implies that future spectrum will unlikely be inexpensive and any good spectrum (like contiguous 1800 MHz) with smaller telcos will likely be bid up. After completion of this transaction, Idea would have 2G (GSM), 3G (HSPA) and 4G (LTE) technologies in all of its 8 leadership markets. Idea's revenue market share in these circles on a combined basis is 30.3%
Management highlighted that the company does not have any 3G/4G spectrum in the circles of Rajasthan, Bihar, West Bengal, Assam and Mumbai and the company might look to shore up its data spectrum holdings in the above circles. Overall, they are of the view that the company has sufficient spectrum for capacity (both on voice and data).
