On March 1, India concluded its first spectrum auction of 2021. India’s Department of Telecom (DoT), through a Notice Inviting Applications (NIA) issued in January 2021, had put up spectrum for auction in multiple bands, including 700, 800, 900, 1800, 2100, 2300 and 2500 MHz bands. These frequencies cut across 2G, 3G and 4G service bands and included both FDD (paired) and TDD (unpaired) bands.
The auction was a qualified success. It netted the Government $10.6 billion and was almost double initial estimates. However, barely 37% of the total spectrum put up for auction had takers, while the 700 MHz band saw no bids at all.
The main takeaway from this auction is that the focus of India’s telcos is currently on 4G, not 5G. With several licenses coming up for renewal, it was imperative that telcos bid on expiring spectrum to renew but also to consolidate with new holdings. The biggest bidders were Reliance Jio ($7.8 billion), Bharti Airtel ($2.55 billion), followed by VodafoneIDEA a distant third with bids worth $272 million.
India will now see three major operators with stable spectrum holdings
There was heavier than expected bidding in the 800 MHz band as well as the 2300 MHz band. All of the three operators bidding have taken different approaches to this auction. The common theme for both Jio and Airtel’s auction strategies was to shore up existing spectrum, acquire new frequencies to consolidate holdings per circle and boost capacity, and lay the groundwork for an eventual 5G network launch.
For its part, VodafoneIDEA (VIL) has taken a very frugal, optimization strategy to spectrum. Their public position has been that they have abundant spectrum and therefore are not hard-pressed to bid aggressively. This is true, with VIL holding ample spectrum, but there is no doubt that they would have had very limited means due to a stressed balance sheet.
5G may not be auctioned in 2021
The Indian government has already indicated its intent to hold a spectrum auction for the 3.5 GHz band in late 2021. However, we believe that this timeline has a very good chance of spilling into early 2022. There are a number of factors at play here, but we will focus on what we believe to be the top three challenges that need to be overcome.
- The biggest issue continues to be the price of spectrum. The reserve price set by TRAI of 492 crores (US$ 66.5 million) per MHz of spectrum in the 3.5 GHz bands is, to put it mildly, prohibitive. For perspective, India’s reserve price is roughly 8 times higher than Korea and 14 times higher than Australia in the APAC region.
- The next issue relates to the quantum of spectrum being made available to the telcos. In the 3.5 GHz band, only 175 MHz is currently available due to prior allocations to the Departments of Space, and Defense, much less than the minimum channel size of 100 MHz per operator to make the business case. DoT has reportedly had very fruitful discussions with its counterparts in Space and Defense but the reported breakthrough is yet to be made official.
- Finally, there is the question about ecosystem readiness in the Indian context. Somewhat lost in the news flow around the auction were recent moves by both Reliance Jio as well as Airtel to showcase their “readiness” for 5G. Jio has claimed it has developed a full 5G stack in-house, while Airtel has showcased its 5G lab in Hyderabad and a recent partnership with Qualcomm to stake its claim to readiness for 5G. The juxtaposition of India’s desire to build a local manufacturing base for telecom equipment, ongoing geopolitical challenges, as well as recent momentum behind technologies like open RAN and telco cloud, has opened up a window of opportunity for an Indian ecosystem to be created.
What’s coming next? Green shoots of recovery and further reform
Industry watchers can expect a lot of movement behind the scenes over the next six months, ranging from policy initiatives to updates from the telecom operators.
There are several areas that need urgent reform. The current policy regime that indexes spectrum reserve prices to past proceeds must be junked, and spectrum prices need to come down. Beyond spectrum pricing reform, there also needs be a clear roadmap of spectrum availability for the next decade. The government has already indicated its desire to address shortcomings in its implementation of the Rights of Way (RoW) policy on a nationwide basis, which will be crucial to enable speedy and cost-effective deployment of digital infrastructure that will be crucial to 5G.
India’s telcos are finally seeing palpable signs of recovery. Recent tariff hikes, while not dramatic, have been enough to boost ARPUs and make an impact on the bottom line. Beyond tariff hikes, there is an urgent need for a review and reform of taxation and other levies that are hampering the operations of India’s telcos. There will also be a major push on broadband connectivity, with investments in fiber to the home (FTTH) as well as a major push on Fixed Wireless Access (FWA).
Vendors should take note of the new opportunities that will emerge from a stable Indian market with rising tariffs and improving balance sheets. With government policies like the Production-Linked Incentive scheme now made official, 2021 will be the first time that there is a serious chance of telecom manufacturing, beyond mobile phones, getting set up in India at scale.
While Nokia and Ericsson already have manufacturing in India, we can expect significant investments from other vendors like NEC and Ciena, as well as local vendors like Sterlite Technologies, as well as from contract manufacturers like Foxconn. Several of the new and rising vendors like Mavenir, Parallel Wireless, Ruckus, Altiostar amongst others will also be looking closely at emerging opportunities in India.
Shiv Putcha is the Founder and Principal Analyst at Mandala Insights, an independent, boutique analyst firm that offers insights, opinions and research on the network and emerging technologies that will drive the next billion digital opportunities in Asia. Shiv is also keenly focused on the intersection of rising enterprise productivity, Industry 4.0 and 5G. Prior to founding Mandala, Shiv covered the telecommunications industry in Asia-Pacific for IDC and Ovum, along with stints at the Yankee Group, Qualcomm and LogicaCMG while based in the United States.
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