Friday, October 7, 2016

India Spectrum Auction Nets about 11% of Government-Forecast Revenue

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India’s big spectrum auction of 2,300 MHz worth of spectrum has ended, with spectrum sold at about 11 percent of what the government projected would be the case, or roughly US$9.8 billion (if I have converted the crore properly). The government had projected sales in the $83 billion range.

As mobile executives had warned, prices for 700 MHz spectrum were simply wildly overpriced. They behaved as they spoke: nobody made a bid for any of the 700-MHz assets. Mobile executives had suggested the government lower the prices and wait before auctioning the 700-MHz assets.

Of the total of 2,300 MHz of assets, the government sold 964.8 MHz of spectrum. Mobile operators purchased about 34 percent of spectrum in the 800-MHz band, about 75 percent in the 1800-MHz band, all of the spectrum available in the 2300 MHz band and about 60 percent of spectrum in the 2500 MHz band. About 20 percent of spectrum in the 2100 MHz band was bought.

Vodafone USA and Bharti Airtel were the biggest buyers of 4G spectrum, followed by newcomer Reliance Jio Infocomm and Idea Cellular.

Vodafone spent over Rs 20,000 crore, Airtel Rs 14,244 crore, Jio Rs 13,672 crore and Idea Rs 12,798 crore.

The auction results, and the squabbling leading up the auction, illustrate several important facts about the Internet ecosystem. From a mobile operator’s perspective, though spectrum access is a necessary precondition for being in business, operators cannot pay “any amount” for that access.

And mobile operators demonstrated with their wallets that spectrum prices set by the government were too high. There is experience behind that thinking. In the past, mobile operators have overpaid for 3G spectrum, for example, in USA and elsewhere.

Operators have learned, from experience, that the cost of spectrum has to be weighed in view of expected revenues that can be generated by those assets.

There also are a few larger points.

Since, in the end, consumers or advertisers are the ultimate sources of all ecosystem revenue, all costs--anywhere in the ecosystem--must be matched by revenues from those sources.

The USAn auction shows that government officials and mobile operators have vastly-different expectations about the revenues that can be generated by using mobile spectrum.

There are reasons mobile operators and others might rationally expect spectrum to prices to begin dropping. For starters, much more spectrum will be made available as 5G standards are set and regulators start to release brand new spectrum in the millimeter regions.

The role of unlicensed spectrum also is growing, reducing, to a real extent, the need to buy licensed spectrum.

In some markets, spectrum sharing also will add even more resources. Finally, small cell architectures are allowing service providers to make better use of any amount of finite spectrum.



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