Vodafone pays top-dollar for India 4G spectrum assets; could pay more

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Vodafone Group emerged as the biggest spender in India’s recent spectrum auction after it acquired frequencies in all its markets at a total cost of INR202.8 billion (€2.74 billion/$3 billion).

Vodafone India acquired a total of 2 x 82.6 MHz FDD and 200 MHz TDD spectrum in the auction across the 1800, 2100 and 2500 MHz bands, and said it now has 17 telecoms markets -- called circles in India -- with 4G capability. About INR101 billion of the fee is payable upfront.

In a research note ahead of the auction, analysts from Jefferies stressed that narrowing the bandwidth gap with rivals was what mattered most in the auction since Vodafone had less than half the 4G bandwidth of Reliance Jio and Airtel.

“The most important legacy from this auction must be that Vodafone accumulates enough resource to be competitive in 4G, not leaving itself open to risk of chronic high-end customer loss,” the analysts said.

Following the auction, the analysts confirmed that Vodafone had achieved the “crucial objective of securing enough spectrum to be competitive in 4G,” and had added more spectrum than its rivals at national level.

Jefferies also noted that Vodafone had spent less than its expectation of INR300 billion. “Nonetheless Vodafone is this morning conceding that its INR203 billion outlay is towards the higher-end of consensus expectations,” the analysts said.

However, Jefferies pointed out that 60 per cent of the available bandwidth went unsold, “with the low frequencies (carrying the highest reserve prices) least popular and no bids at all in the 700 MHz band.”

In view of the fact that large blocks of freed-up spectrum remain unsold, it is already speculated that another auction could be scheduled for 2017.

“So rather than spending less on spectrum than we forecast in our model, Vodafone has probably just deferred part of its outlay…What should still reassure Vodafone investors, in our view, is that the basic objective of capturing the raw material necessary to be competitive in Indian 4G has been achieved,” Jefferies said.

India is a hugely important market for the Vodafone Group, which has sought to generate revenue in areas outside the highly competitive European region.

Indeed, Vodafone India has the largest voice and data traffic usage within the Vodafone Group and more than 200 million customers. At June 30, 2016, Vodafone India had 69.7 million data users, of which 32.3 million use 3G/4G.

In the group’s results statement for the financial year to end-March 2016, service revenue from the Africa, Middle East and Asia Pacific region as a whole increased by 6.9 per cent to £11.84 billion (€13 billion/$14.52 billion) in organic terms, of which £4.49 billion was from India. Total group revenue was £40.97 billion.

During the spectrum auction, which was completed in just five days, Vodafone bid alongside major Indian players including Idea Cellular, Bharti Airtel, Aircel, Tata Teleservices, Reliance Communications and Reliance Jio -- the Reliance unit established for 4G services.

The auction raised a total of about INR658 billion for the Indian government, and has broadly been regarded as something of a failure in that regard -- especially as so much of the available spectrum assets went unsold.

For more:
- see the Vodafone Group release

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