This largesse will enable the United Progressive Alliance government to reduce the fiscal deficit well beyond the target of 4.8 per cent of GDP that Finance Minister P. Chidambaram had set himself. The government's total earnings fall about 10 per cent short of what it got from the auction of third-generation (3G) spectrum in 2010.
As in 2010, operators bid aggressively. The current auctions saw massive traction in the 1800 MHz band, which will enable operators to offer fourth-generation (4G) data services - several times faster than 3G.
The total earnings from the 1800 MHz band auction was Rs 37,500 crore. The remaining amount will be paid by Bharti Airtel, Vodafone and Idea Cellular to retain 900 MHz spectrum in the three circles of Delhi, Mumbai and Kolkata, where licences expire by November 2014.
Thus, Bharti Airtel and Vodafone will be paying about 63 per cent of the total auction amount, Rs 18,530 crore and Rs 19,600 crore respectively. Reliance Jio, another major bidder, will pay Rs 11,064 crore for spectrum in the 1800 MHz band.
In the broadband wireless access (BWA) auctions which took place alongside the 3G auctions of 2010, there had been only two formidable players, Bharti Airtel and Reliance Jio. In the 1800 MHz band auctions this time, the field was much more crowded. Ultimately Airtel acquired 15 circles, Vodafone 11, and Idea Cellular eight, apart from Reliance Jio getting 14 circles, Uninor five, Aircel five and RCom, one.
Analysts said the price paid was higher than expected. But operators believe it was worth it.
4G BATTLE HEATS UP
For the incumbent operators, the necessity of retaining 900 MHz of 2G spectrum in Mumbai, Delhi and Kolkata circles, all of which are high margin, high ARPU (average revenue per user) regions, was obvious. But why such strong bidding for 1800 MHz frequency? It was to get ready for data play.
As 1800 MHz is a liberalised spectrum band which allows operators to offer any kind of service, whether voice or data (though it is best suited for high speed wireless broadband) it opens up the competition for Reliance Jio, which till now had pan-India licences for 2300 MHz spectrum and could offer 4G services only.
Reliance Jio has taken another 79 MHz of spectrum in 14 circles in the 1800 MHz band. This will allow the company to offer better inside building wireless penetration, a constraint with the previously owned 2300 MHz band.
In a press statement after the auction concluded, Vodafone India's CEO Marten Pieters said the auctions had opened the door for Vodafone to offer 4G services. The company has recently been pushing its play in the data space, but it has limited access with 3G services only in nine out of the 22 telecom circles. The acquisition of 1800 MHz spectrum will allow it to plug this gap.
The company has also announced $3 billion investment in its India operations to boost data services, rural penetration and distribution. The investments do not include the auction money.
Bharti Airtel had BWA spectrum in eight circles after acquiring the four circles initially bought by chipmaker Qualcomm. After the acquisition of 1800 MHz spectrum it will be able to increase it footprint to 17 circles. The five left out are Assam, Bihar, Gujarat, UP (East) and UP (West).
The data services business in India has just started taking off. It's early days and everyone wants the largest chunk of the business. Bharti Airtel, Vodafone and Reliance Jio seem to be the three 800 pound gorillas in the fray.