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36 tele.net | August 2016

What are your expectations from the upcom-ing spectrum auction? What will be the keydampeners and/or success factors?

Sathish Gopalaiah and Aditya Khaitan (The views and opinions expressed herein arethose of the author and do not necessarily repre-sent the views and opinions of KPMG in India.)

With the government’s clearance, thestage is set for one of the biggest spectrumauctions in India with approximately2,300 MHz of spectrum across sevenbands, valued at around Rs 5.66 trillion,up for grabs. However, we believe that thebalance sheets of telecom serviceproviders are already leveraged and bid-ding in this auction might not be asaggressive as it was in 2015.

The key dampeners envisaged are asfollows:• Pricing of spectrum: Given the high

reserve price for spectrum in the 700MHz band, the amount that service

providers need to spend to acquire a 5MHz block on a pan-Indian basis mightbe a deterrent. The value of spectrum inthe 700 MHz band is a significant portionof the total spectrum value on sale.

• Ecosystem for the newly introducedbands: Lack of a developed device eco-system for the 700 MHz and 2500 MHzbands could hamper bidding.

• Stringent payment conditions: The pay-ment conditions have been made morestringent for the above 1 GHz bands –1800 MHz, 2100 MHz, 2300 MHz and2500 MHz – with upfront paymentbeing increased to 50 per cent from theprevious 33 per cent. These factors arelikely to put further pressure on thealready cash-strapped telecommunica-tion companies.

Factors that will drive spectrum saleinclude:• Opportunity to expand the 3G footprint

and roll out 4G networks: Meeting cus-tomer demands created by exponential

data growth and improving customerexperience could be the key drivers forpurchase of spectrum in the 1800 MHz,2100 MHz and 2300 MHz bands.

• Availability of harmonised spectrum:Spectrum bands are now technologyneutral. Moreover, the availability ofharmonised spectrum in the 800 MHzand 1800 MHz bands could furtherincrease interest in these bands.

• Availability of spectrum in 30 days: Thespectrum won in the auction will bemade available in 30 days from the dateof making the payment, facilitating easeof doing business.

• Reduced lock-in period: The lock-inperiod after the fulfilment of the roll-outobligation has been reduced to one yearfrom the earlier two years, which willprovide flexibility to operators for trad-ing/sharing of unused spectrum.

Hemant Joshi The upcoming spectrum auction with an

Spectrum HopeIndustry awaits upcoming auction for business expansion

The government has finally set September 29, 2016 as the date to kick off the biggest ever spectrum auction in the country. The spec-trum sale will witness telecom bigwigs fighting it out to acquire spectrum worth around a base price of Rs 5.6 trillion, spread across mul-tiple bands. Spectrum acquisition in some of the highly efficient bands will enable operators to provide good quality of service (QoS) totheir customers. Further, increased spectrum availability will give a major fillip to the data ecosystem in the country. As the industry gearsup for the upcoming spectrum auction, tele.net seeks analysts’ views on the expected outcome and potential operator strategies…

Director, Telecom Media andTechnology Consulting, KPMG

Aditya Khaitan

Partner and Hea, Telecom Mediaand Technology Consulting,

KPMG

Sathish Gopalaiah

TMT India Leader, Deloitte India

Hemant Joshi

Analyst, Asia Pacific, Ovum

Inderpreet Kaur

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37tele.net | August 2016

estimated value of Rs 6 trillion is expectedto be the biggest in the history of the Indiantelecom sector. Reports indicate that thisauction will not be a “do-or-die situation”for operators. The new spectrum couldprovide new business opportunities andgeographical expansion. Spectrum in sever-al bands will be made available for the firsttime in India and is likely to attract manybidders. The demand will be different fordifferent spectrum bands.

Inderpreet KaurOf the total spectrum that the TelecomRegulatory Authority of India (TRAI) hasproposed to put on sale in various bands,only the 2100 MHz, 2300 MHz and 700MHz bands offer large blocks of contiguousspectrum that operators will find useful forproviding data-led services. The rest of thebands have fragmented spectrum, offeringsmall-quantum blocks. The recent clearingof spectrum sharing and trading rulesmeans that operators might choose to optfor the less pricey spectrum in the 800MHz, 900 MHz and 1800 MHz bands, inorder to fill the gaps, if any, in their dataspectrum holdings.

The high price attached to the 700MHz band might further limit operators’interest, keeping in view the huge debtsthat they are carrying their balance sheets.TRAI has decided to opt for the Asia-Pacific Telecommunity (APT) 700 fre-quency division duplex (FDD) for deploy-ing long term evolution (LTE) services asthis plan has been widely adopted globally.However, the limited availability of LTEuser devices may also dampen operatorinterest in the band.

Which band(s) do you believe will be the mostsought after by the players and why? What isthe near-term scope of service roll-out andadoption in the 700 MHz band in India?

Sathish Gopalaiah and Aditya Khaitan The 1800 MHz, 2100 MHz and 2300MHz bands could generate a fair amountof interest in the auction.• With technology neutrality, the 1800

MHz band will be utilised for FDD-LTE deployment. Key drivers for theuptake of this band include utilising itfor LTE coverage requirements andsupporting the existing subscriber base(2G and 3G). Availability of harmonised1800 MHz spectrum would increase ser-vice providers’ interest in the band.

• The 2100 MHz band is among the mostimportant bands for 3G in India.Despite the introduction of 4G, opera-tors are still in the process of enhancingthe coverage and capacity of their 3Gnetworks. This is likely to drive theuptake of this band.

The 2300 MHz band, which supportsTD-LTE and has a well-developeddevice ecosystem may witness high par-ticipation by service providers looking toexpand their LTE networks. For the 700MHz band, the high reserve price of thespectrum is expected to be a major deter-rent. Even if the band is selectively pickedby operators in specific circles, the exist-ing ecosystem could impact the near-term scope and service roll-out, and spec-trum might remain underutilised.

Hemant Joshi Spectrum in the 1800 MHz, 2100 MHzand 2300 MHz bands will be the mostsought after, because of the advantage of analready developed ecosystem for them.Further, these bands provide possibilitiesfor business and geographical expansion tomajor operators.

Spectrum in the 700 MHz band ispriced 40 per cent higher than that in the1800 MHz band because of its greaterefficiency. Although there is great poten-tial for the 700 MHz band, in terms ofglobal opportunities, it could attract

fewer bidders because its ecosystem isstill underdeveloped.

Inderpreet KaurFor LTE, the 700 MHz band offers bettercoverage and more in-building penetra-tion than any other band. Importantly,deploying LTE in the 700 MHz bandlowers capex requirements compared tothe 2100 MHz and 2300 MHz bands.However, with the current market condi-tions and high pricing linked to the 700MHz band, operators might show lessinterest in it. The regulator has becomemore stringent about network quality andcall drops, and operators are expected toadopt a balanced approach while planninginvestments in spectrum acquisition andongoing network expansion.

Although the APT 700 FDD bandplan has been adopted in over 40 coun-tries, only a handful of devices are capableof supporting LTE in this band. Also, 4Gis still at a nascent stage in India and it willnot account for a substantial share of thecountry’s total mobile subscribers before2017-18. All this means a long wait for the700 MHz band to become mainstream.

What should be the key considerations/strategies for operators for participating inthis auction?

Sathish Gopalaiah and Aditya Khaitan The key considerations for players par-ticipating in the auction should be:• Existing network state, growth projec-

tions and spectrum needs • Bridging network gaps in the 3G net-

work to enable pan-Indian roll-out• 4G roll-out and expansion• Availability of harmonised spectrum in

the 800 MHz and 1800 MHz bands• Pricing of the spectrum on auction• Business case for spectrum with poten-

tial return on investment• Device ecosystem for the new bands.

“The spectrum won in the auc-tion will be made available in30 days from the date of mak-

ing the payment.”Sathish Gopalaiah and Aditya Khaitan

“Reports indicate that this auction will not be a ‘do or

die situation’ for operators.”Hemant Joshi

“The future growth in telecomrevenues will be driven by

data services.”Inderpreet Kaur

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The primary focus of operators shouldbe on bridging the gaps in existing 3G net-works, and coverage and capacity enhance-ments to enable a pan-Indian 3G network,delivering the desired customer experienceto voice and data users. To keep up with theexponential data growth and tap into thiskey revenue driver, operators should alsofocus on simultaneously rolling out their4G network in urban areas to lewrage therevenue opportunity.

Operators might be very selective inbidding for the 700 MHz and 2500 MHzbands, considering the underdevelopeddevice ecosystem and pricing for the 700MHz band.

Hemant Joshi Operators need to be careful while biddingas there are a variety of spectrum bandsavailable for auction. Although the 700MHz ecosystem is underdeveloped, opera-tors could gain the first-mover advantage inthis highly efficient band. Geographicalexpansion will be a key consideration andoperators may consider the chances offuture consolidation while bidding for spec-trum. Debt burden will be a deciding factorand the ongoing call drop issue will encour-age operators to bid for more spectrum.Also, the possibilities offered by new andinnovative technologies like internet ofthings, machine-to-machine and cloud-based services will be contributing factors

in operators’ bidding decisions.

Inderpreet KaurAn operator’s decision to participate in theupcoming auction would be influenced bythe following factors:• Industry consolidation: The industry

has moved ahead on the path to consoli-dation and Ovum expects India toemerge as a market with five to six play-ers over the next few years. Operatorswould consider their future and role in ahighly consolidated market beforecharting their spectrum requirements.

• Long-term industry outlook: India ismoving away from being a voice marketand the future growth in telecomrevenues will be driven by data services.Looking at the long-term strategy, oper-ators cannot afford to fall short on dataspectrum, be it for 3G or 4G services.Having said that, the current auctionwill see selective bidding, with operatorstrying to fill the in gaps in their existing3G/4G spectrum portfolios.

• Incumbent operators’ position againstReliance Jio (RJIL): Incumbents havebeen working on widening their broad-band spectrum assets in order to matchthe capacity of RJIL. For instance, Bhartiis already looking at acquiring additional2300 MHz and 1800 MHz spectrum fromAircel and Videocon is planning to extendits 4G coverage to all the 22 circles.

Based on your expectations, how do yousee the overall industry dynamics changeafter the conclusion of the auction? Whatcan be the potential impact on variousstakeholders, including the end-user?

Sathish Gopalaiah and Aditya Khaitan The consolidation that commenced withthe spectrum trading/sharing policybeing formalised is likely to continue.Stressed balance sheets and high debt areexpected to drive the consolidation. Thiscould enhance market shares, which inturn will drive growth and profitabilitythrough volumes.

Considering the spectrum on auc-tion, operators will have sufficient band-width to ensure QoS in their networks.The spectrum acquired could drive 4Groll-out and expansion, and help inenhancing 3G network coverage andquality. In line with the trends in datarevenue and usage, customers might wit-ness improved data plans and higher dataspeeds. The additional spectrum obt-ained by operators could also helpresolve issues pertaining to networkquality, the lack of which leads to calldrops and degraded voice quality.

Hemant Joshi Among the issues plaguing the Indiantelecom sector, poor QoS, call drops, etc.reflect the lack of contiguous spectrum.Operators are trying to utilise theavailable spectrum to serve the secondlargest telecom market in the world. Thespectrum auction is likely to changeindustry dynamics and give a chance tooperators to improve their QoS. Theadditional bandwidth will enable them toimprove the presence of data-based ser-vices like 3G and 4G and ultimately allowthem to provide innovative services toend-users. For end-users, there could besignificant improvement in networkavailability, and call continuity services inmore regions.

On the other side, the debt of operatorswill certainly go up and could bring the sec-tor closer to consolidation. In addition, itwill accelerate the entry of mobile virtualnetwork operators in the ecosystem that hasbeen pending for a while. ▲

38 tele.net | August 2016