5G Auction — How to use the EMD value to estimate the operator’s bidding flexibility?
5G auction is near, and the players wanting to bid have already submitted their respective EMD (Earnest Money Deposit). What is an EMD? This is almost similar to buying chips in a casino for the purpose of making a bet. The higher the value of the EMD more flexibility the bidder will have, to not just bid across all bands, but also to take a large quantum of spectrum. Hence, as soon as the value of EMD is made public by DoT, then everyone will try to make an attempt to speculate the extent a bidder can go to buy spectrum. However, it does not mean a bidder has to consume all its EMD during the course of the auction. He may decide not to, and change his mind during the course of the auction — taking a much lesser quantum of spectrum than what the EMD empowered him to take. Therefore, it is worthwhile to note that the EMD value per se does not decide the final outcome of the auction. It only helps us in understanding the flexibility that a bidder will have to bid across various bands during the course of the auction. The purpose of this note is to make the process of estimating this flexibility easy and simple.
Estimating the EMD value
This is not that difficult. Section 12 of NIA (Notice Inviting Applications), pages (106–116) already has tables that list the EMD values/block for all the bands put out for sale. A “block” defines the granularity (a minimum chunk of the spectrum) that a bidder needs to use in order to place his bids. All bids must be placed in multiple of these chunks. Hence, EMD needed for the operator to bid for a particular quantum of the spectrum will be a simple multiplication of that value with the quantum of spectrum that the operator is interested in. Therefore, if we are able to identify the operator’s interest in various bands, then we can add up all these numbers to see if the aggregated value maps to the total EMD submitted by the respective operator. If the number doesn’t converge, then we can revise our prediction and then recalculate the total EMD till it finally converges. This process will give us a fair understanding of how the auction might go and even (to some extent) tell us about the “intensity of bidding”.
Expediting the process of estimating EMD
In order to make the above process (mapping EMD with bidding intensity) more efficient and easy, I have developed a simple tool that empowers us to expedite this process considerably. Input into the tool is the operator’s bidding interest in various bands (spectrum in MHz). In order to estimate this value, I have used numbers that emanated out of my previous note titled — “Indian Spectrum Auction — Operator’s Bidding Strategy (Revised Version)”. This gives a fair estimate for the lower bands — 800, 900, 1800, 2100, 2300 & 2500 MHz. For the 5G bands of 3500, & 26000, I have given the flexibility to the user to enter the values directly into the tool. This I have done in absence of any fast references of bidding in these bands, thereby making such prediction difficult. Also, for the lower bands, I have also given the user the flexibility to select or deselect any specific band that might be required for the purpose of this convergence. Note, that in this tool the flexibility to choose and predict bidding interest is limited only up to the band level and not extended to the circle level for the purpose of keeping the tool simple and less complex.
The EMD tool’s Dashboard
The following is the snapshot of the dashboard to the EMD tool. The link to the tool is embedded here.
The top part of the tool has menus that the user can use to make his selections. Also, there are input boxes here, where the user can enter his prediction about the operator’s interest in 3.5 GHz & 26 GHz bands. As soon as the selection is complete the output of the EMD matrix will get displayed in the upper half of the dashboard. For the bottom half, the user can choose either between spectrum or outflow for the respective operator. Based on his choice, the spectrum values or outflow values (at reserve price) will get displayed in the bottom half. The user can revise his choices if there is a divergence between the DoT published EMD values and that emanated out of the tool till there is an approximate convergence.
What are the possible scenarios?
Based on my earlier estimates in the previous note titled — Indian Spectrum Auction — Operator’s Bidding Strategy (Revised Version), we can predict the following scenarios.
a) Bharti — If it decides to bid 80 MHz of the 3.5 GHz band, and 800 MHz of the 26 GHz band then it will need to submit an EMD of Rs 6335 Cr. In case the published EMD value is less than this value, then he has a choice of totally skipping the 2100 MHz band, or reducing the quantum of spectrum for 5G in the 3.5 GHz band. In case it does the former, the EMD that it will need to submit is Rs 5674 Cr. Now if this number still exceeds the DoT published value, then it can reduce the quantum of spectrum in the 3.5 GHz band from the current value of 80 MHz to let’s say 60 MHz. Doing so will lower the EMD value needed to Rs 4960 Cr. You can try other permutations and combinations till you are satisfied with the outcome.
b) RJIO — It appears that RJIO will only be interested in bidding in 4 bands (800, 1800, 3500 & 26000 MHz). Now since we have clarity on how he will bid in 800 & 1800 MHz bands, and therefore just by tweaking the input values for the 3500 & 26000 MHz bands in the tool one can converge to the DoT published EMD number for RJIO. For example, if RJIO bids as predicted in the non-5G bands (as mentioned in my earlier note), and bid 80 MHz in 3500 MHz and 800 MHz in 26000 MHz, then it will need an EMD value of Rs 7267 Cr. The same permutation and combinations can be done here as well as was done for Bharti for the purpose of converging with the DoT published value.
c) VodafoneIdea — It is difficult to predict how VI will bid. But in case we go with the numbers as estimated in my earlier note, and by assuming that VI will bid 80 MHz in 3500 MHz and 800 MHz in 26000 GHz band, then it will need an EMD value of Rs 4085 Cr.
d) Adani — As per the press report, Adani has shown interest in bidding for the purpose of deploying private networks. In my view, the best band that can serve this purpose most optimally is the 26 GHz band. Hence, if Adani decides to bid 400 MHz in the 26 GHz band (Pan-India), then he will need an EMD of Rs 348 Cr. Anything less shall mean, that either his interest is limited to some specific circles or he intends to take much less quantum of spectrum. One can easily figure this out by playing with the tool.
Conclusion
As soon as DoT published the EMD values for the respective operators, one can use this tool to expedite the process of estimating the operator’s interest in the various bands and also to estimate the quantum of the 5G spectrum that it is targeting. Hope you find this useful.
(Views expressed are of my own and do not reflect that of my employer)
PS: Find the list of other relevant articles in the embedded link.
