Indian Spectrum Auction — Operator’s Bidding Strategy (Revised Version)
A few days back I did a detailed note on how the operators will bid for spectrum in the forthcoming auctions. With the NIA having out today, it has been observed that the spectrum in 800 MHz has increased significantly, thereby impacting the bidding strategy of the operators in this band. However, the spectrum, in the 900 MHz has decreased, and in the 1800 MHz band it has increased slightly. This note will elaborate on how the operators might bid on account of these changes. While visualizing the strategy, it has been assumed the operators will make all attempts to take enough spectrum to complete block sizes in multiples of 5 MHz, thereby consolidating their position in all the existing 4G bands. While attempting to predict the bidding strategy, we will also attempt a bird’s eye view of the operator’s share in various bands post auctions. Finally, we will play with a tool that will give us the changes in the overall outflow of the operator once we have entered into the tool an assumed quantum of 5G spectrum in the 3.5 & 26 GHz bands.
800 MHz Band
The following figure captures the operator’s bidding matrix. On the right-hand side of the table (under the remarks column), the reasons for making such decisions are clearly laid-out.
Compared to pre-NIA, the quantum of spectrum in this band has increased from 81.25 MHz to 136.25 MHz (55 MHz, 66%). This gives RJIO a huge opportunity to consolidate its position in this band significantly. It is expected that it will end up taking 110 MHz (80.7%) of the total spectrum offered. Its total outflow at RP will be Rs 18,750 Cr. Bharti and VI will most likely not bid on this band.
900 MHz Band
The following figure captures the operator’s bidding matrix for the 900 MHz band.
Strangely, the total quantum of spectrum in this band has decreased from 99.2 MHz to 74.4 MHz (24.8 MHz, 25%). But fortunately, the bidding strategy of the operators hasn’t changed much. Bharti and VI will still have the same opportunity to complete blocks that are multiples of 5 MHz, except in Kolkata where the spectrum quantum has been reduced from 4.4 MHz to 2.8 MHz. Hence, in this circle, Bharti and VI have to pass as it falls much short of what they would need for completing 5 MHz blocks. The total outflow of Bharti will be Rs 3615 Cr at RP and that of VI will be Rs 913 Cr. Most likely RJIO will skip this band.
1800 MHz Band
The following figure captures the operator’s bidding matrix for the 1800 MHz band.
In this band, the quantum of the spectrum has only increased marginally — from 262.8 MHz to 267.2 MHz (4.4 MHz, 1.6%). Hence, there is no change in the bidding strategy. Most likely all the three players will bid. Bharti will end up spending Rs 9093 Cr, RJIO Rs 11494 Cr, and VI Rs 1592 Cr at RP.
Since the quantum of the spectrum has not changed in other bands, please read my earlier note (Indian 5G Auction — Who will bid what and why?) to get insights into how the operators might end up bidding in the other bands.
Operator’s Outflow
The summary of the operator’s outflow assuming they end up bidding 40 MHz of 3.5 GHz band and 400 MHz of 26 GHz is as under.
Note while doing this summary I have assumed that operators will skip the 600 & 700 MHz bands as these are much higher compared to the operator’s expectations. If the bidding goes as predicted, the DoT will end up collecting Rs 1,13,670 Cr.
Post Auction % Market Share (4G Bands)
The following table captures the post-auction market share of all the three operators in bands that are clubbed together due to their similar propagation characteristics. While doing the % MS both existing and spectrum acquired through the auction have been considered. But ONLY for the operators, that are listed in this chart below (RJIO, Bharti & VI).
Note that RJIO has the highest market share in the Subs GHz spectrum (800 & 900 MHz). In 3 circles it has 20 MHz, and in 13, 15 MHz, and in the remaining circle, 15 MHz. Bharti is second in the line followed by VI. This makes me think that how important 600 & 700 MHz bands will be for Bharti and VI. Given an opportunity, Both Bharti and VI will like to acquire more spectrum in this band. But whether they will bid on these bands in this auction remains a question mark.
In 1800 & 2100 MHz, the balance tilts towards Bharti and VI, they have much more spectrum in these bands.
However, in the 2300 & 2500 MHz bands, the balance tilts against VI in favor of Bharti and RJIO. Both have almost equal market shares.
Spectrum Summary (Post Auction All Bands)
The table below captures the summary of all spectrum bands (post auctions) for RJIO, Bharti, and VI.
In this table, I have assumed that all three will bid 40 MHz (TDD) in the 3.5 GHz band and 400 MHz in the 26 GHz band. More or less the total quantum of spectrum is the same for all three, but RJIO has a better quality spectrum, especially in the 800 MHz band.
Estimating Spectrum Outflow Tool
The table below captures the outflow of the tool where a user can input his own values of 4G spectrum in the 3.5 GHz and 26 GHz bands and see the impact on the operator’s overall outflow. Currently, the tool has the capability to input only 5G spectrum, later I will add 4G as well.
The link to the tool is embedded here. In order to prevent confusion, I have allowed the user to enter the 5G spectrum in the 3.5 GHz and 26 GHz bands as measured in TDD. One can see that with 40 MHz in 3.5 GHz and 400 MHz in the 26 GHz band, the outflows of the three operators are Rs 45,540 Cr (RJIO), Rs 40,964 Cr (Bharti), and Rs 27166 Cr (VI). This is when we assume that in the existing bands they end up bidding on the same spectrum as we have predicted in our bidding strategy earlier.
If we increase the input for the 3.5 GHz band to 100 MHz and keep the 26 GHz constant at 400 MHz, the outflow numbers changes to Rs 64560 Cr, Rs 59984, and Rs 46186 Cr for RJIO, Bharti, and VI respectively at RP.
The user can play with the tool and see for himself the changes. This tool also takes into account the overall spectrum cap (40%) and minimum block size that the bidder has to bid.
Conclusion
It is absolutely clear that RJIO, Bharti, and VI will bid and consolidate their position in 800, 900, 1800 MHz, & 2300 MHz bands. As regards 2100, and 2500 MHz I am not that sure whether they will bid and take all the spectrum offered. The outflow for 2100 MHz is Rs 8.350 Cr for Bharti and Rs 6325 Cr for VI. These are huge sums of money. It is possible that Bharti and VI might use these funds to get more 3.5 GHz spectrum. As regards VI, I am not sure how intense their bidding strategy will be for the 2500 MHz band — since this band is fragmented (in two chunks) and can’t be harmonized. But mmWave band will see bidding as this band is affordable and will drive SUC down for the operators. The same should have been true for the 3.5 GHz band provided its price would have been a little more affordable. Anyways, the opportunity is huge for all the stakeholders — the operators, the consumers, and the government, and we all are eagerly looking forward to this auction.
(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.
