Why Reliance JIo Infocomm will Bid in Spectrum Auction ?

Airtel , Vodafone, Idea Cellular (Idea), Reliance Communications (RCOM), Reliance Jio (RJIO), Tata Teleservices (TTSL), Aircel and Uninor have submitted applications for participation in the 900MHz and 1800MHz auctions to be held in February 2014. The previous auction (March 2013) had failed to elicit any response due to the high reserve price and stretched financials of operators. The February 2014 auctions were anticipated to receive better participation and aggressive bidding (in select circles).

The recent deal between RJIO and Airtel, which has accelerated the former’s rollout plans, could heighten competition in the upcoming auctions. However, even post availability of spectrum and infrastructure, RJIO’s subscriber acquisition strategy is keenly awaited.

Why Reliance Jio Bid in Spectrum Auction
Reliance Jio has already acquired 20 MHz of unpaired pan India 4G spectrum in 2.3 GHz for US$2.8bn. With China investing in TDD, we believe the ecosystem cost will come down considerably, and to spend another US$3-3.4 bn on acquiring spectrum may be inappropriate. Thus Reliance Jio Infocomm is likely to Bid for the 900MHz Spectrum as justified by an Analyst here.


The Following Chart Shows the Comparison of Telecom Spectrum Base Price in 2010, 2012 and 2014 Auctions in India Telecom Spectrum Auction Base Price Chart

What is Different in 2014 Auction that is Attracting Reliance Jio Infocomm ?
Spectrum is no longer scarce in quantum and Incumbents are a lot more rational since they have learnt from previous cases of overbidding. The reserve price of the current auction is ~51% (37% lower for 1800MHz and 66% lower for 900 MHz) lower than the November 2012 auctions, and 47% lower compared to the 3G auction’s discovered price. The quantum of spectrum in the 1800MHz paired band to be auctioned is 403.2 MHz, i.e. almost 18 MHz per circle as against 345 MHz in the 3G auction and 295 MHz in the November 2012 auction.

How Much will the Auction Yield to Government ?
We expect the spectrum auctions to happen at a 20% premium to the reserve price, and if the entire spectrum available for auction is sold, we estimate that the government could raise ~Rs575bn or US$10 bn.

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