Indian 5G auction is now entering the 4th day. As initial estimates, the auction should have ended on the 2nd day itself, but surprisingly has spilled over into the 4th day. Why? It is all due to the battle that is currently on for grabbing spectrum in the 4G core band of the 1800 MHz band of UPE. The battle for spectrum in this band had been raging continuously for 2 days with a persistent aggregated demand — much higher than the total number of blocks offered for sale. In this note, we will try to analyze who is bidding on UPE and why.
UPE Bidding Matrix
The following is a snapshot of auction data for this circle end of the past 3 days. All numbers representing values of the spectrum are in Rs Cr.
One can clearly see from the above, that there could be two most likely possibilities — a) All three players are bidding 5 MHz each (25 blocks of 0.2 MHz); b) Only two players are bidding, and one out of two players is bidding 10 MHz (50 blocks of 0.2 MHz). The valuation of spectrum in this band has already increased by 22.7%, from Rs 983 Cr to 1227 Cr at the end of Day3.
Importance of UPE
The importance of UPE can be evaluated by looking at the operator’s % market share on two fronts- a) Subscribers; b) Revenue. The following table captures these two matrices.
A) Subscriber & Revenue % Distribution
One can clearly see from the above table, that UPE is important for all three bidders. For Bharti, UPE’s subscriber share of its overall tally stands 2nd just after Bihar. For RJIO, the situation is almost similar. For VI also UPE is an important circle. The same story repeats if we look at the revenue market share distribution of all the three bidders.
B) Spectrum Holdings
Now let's evaluate the existing spectrum holdings of the bidders in this circle.
The above picture tells us that liberalized spectrum holding in UPE is almost similar for all the three bidders. But in the 1800 MHz band, Bharti has an edge with 15 MHz of spectrum followed by both RJIO and VI with 10 MHz each. Note in 900 MHz Bharti and VI have 5 MHz & 5.6 MHz of liberalized spectrum. Bharti additionally has 6.2 MHz in 900 MHz of the un-liberalized spectrum which is expiring in 2024. Also, in this auction 900 MHz has zero spectrum for sale in UPE. This puts Bharti in a precarious situation. It might want to make up the 1800 MHz band by grabbing additional 5 MHz of the spectrum more than it already has (which is 15 MHz). That is why Bharti might be bidding 5 MHz in the 1800 MHz band in order to preserve its leverage in the market.
Now the 1800 MHz band is also important for RJIO. Now if Bharti gets 5 MHz then its overall tally in the FDD band (900, 1800, 2100 MHz) will become 30 MHz. For RJIO will be 25 MHz (800, 1800) and additional 10 MHz in the 700 band — an assumption based on EMD data submitted. Hence, it is clear that RJIO’s leverage will decrease (compared to Bharti) in 4G (25 MHz vs 30 MHz of Bharti). Hence, bidding for 5 MHz in the 1800 MHz band is crucial for RJIO.
Coincidentally, for VI also the situation is desperate. It has no means to take additional spectrum in 900 MHz (none is up for sale) and increasing its kitty to 1800 MHz further can help to maintain competitive leverage.
Conclusion
Due to the above reasons, UPE has become a bone of contention in this auction. None will like to budge — as the stakes are high in order for all the three bidders to preserve their leverage in this crucial market. Hence, most likely all three players are bidding 5MHz each. I would not be surprised if the tussle continues for many more rounds. It will be interesting to watch who blinks first. But one can be sure that the price of UPE will continue to rise till someone backs out. Till then the auction will continue in only this circle as in all other circles the battle is settled and all bidders are locked out.
(Views expressed are of my own and do not reflect that of my employer)
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