India’s Telecom Milch Cows Bellow In Disharmony At State-run Spectrum Auction

The country’s few remaining telecom operators termed it “survivors’ vigilance” and the “3G aftermath”, admitting that more wireless spectrum was not high on anyone’s wishlist now. “Telcos have been notching up the lowest RoI (return on investment) that India Inc. has seen for decades, with every rupee pumped in not even bringing back one paisa in profitability in most cases. If the returns be close to zero, investments will be close to zero too…”

The Government had put up over 10,500 MHz of spectrum for sale in this latest auction, but saw actual bids for only around 150 MHz; and that after seven rounds of bidding in eight different spectrum bands.

This, in itself, bears testimony to the ground-truth that purse-strings are being reluctantly loosened, if at all, and that the days of spectrum buys for the sake of peppering Powerpoint presentations with fancy and attractive pie-charts are over.

Key Players Investing Only to Stay Alive

That is perhaps why the telecom space – which is increasingly being called “an industry of survivors” – saw the maximum bids for spectrum from companies only in those circles where they are running out of time. For instance, Bharti Airtel and Vodafone Idea largely bid for spectrum in those telecom Circles where their licenses will expire later this year. The two predominantly made bids in the 900 MHz and 1800 MHz bands, with the 2100 MHz (Airtel) and 2500 MHz (Vodafone) bands seeing only rudimentary interest.

It was Reliance Jio, the late entrant – and thus the ‘blessed one’, as it has most time left for its licenses to expire – that bucked the trend and displayed a fair gumption for expansion. Even though Jio’s participation in the auctions is learned to have been limited, the market leader is said to have bid for spectrum in the 1800 MHz band to pump up its 5G play further. Airtel’s acquisition of the 900 MHz spectrum is also an attempt to keep snapping at Jio’s heels in the sub-Gigahertz band.

Survivors’ Vigilance & 3G Aftermath

Since operators mentioned “survivors’ vigilance” and “3G aftermath”, we should understand what they mean. Cut-throat competition in Indian telecoms dates back to its very inception when Spectrum came free with the license to operate wireless services. Starting bids for telecom licenses saw highs that led many to call them “ridiculous”. They were proven right too, as the Government had to step in to bail out telcos that had bid close to Rs 100,000 crore – remember, we are talking of the 1990s!

Then came in National Telecom Policy 1999, which envisioned access to telecommunications as something that would empower the country to achieve its socio-economic goals. Availability of affordable and effective communications for citizens was at the core of and the goal of the policy. Licenses suddenly came with a built-in time bomb, the revenue-share clause, with telcos needing to pay a percentage of their Adjusted Gross Revenue (AGR) as license fee.

The other explosives in the works were auctions, the bloodiest being that for 3G spectrum. A nascent telecom sector went berserk and all but hallucinated on its revenue and profit projections, with the three top players forking out nearly Rs 15,000 crore each for airwaves that “would change the way India communicates”.

India didn’t change. The fortunes of operators did, as telco after beleaguered telco buckled under debt pressure and downed shutters, rendering lakhs jobless. A sunshine industry with 12 players at its peak whittled down to seven. The few remaining giants - RCOM, Tata Teleservices, Aircel and Sistema Shyam - hung on till parent pockets allowed, and then quietly exited to trim the telco headcount to four. Of these four, one was the state-owned BSNL-MTNL. Sunset had truly arrived.

Lacklustre Auction Will Trouble The Exchequer

Moving back to the spectrum auctions held this very week, they will be a source of worry – a glowing warning sign – for the exchequer. In its estimations, the Government has projected revenue collections of Rs 120,000 crore from spectrum sale proceeds. The gnawing gap between this projection and the actual realisation of Rs 11,300 crore in this first auction chapter will be tough to fill, one that holds the potential to send fiscal deficit figures into a tizzy.

A rough break-up of the Rs 11,300 crore is bids of around Rs 6,000 crore from Airtel, Rs 3,000 crore from Vodafone Idea and Rs 2,000 crore from Reliance Jio. A factor to be kept in mind while the Government vacuum cleaner sucks in even this small pie is Vodafone Idea’s ownership structure, a large part of which now vests with the Government of India itself.In real terms, therefore, a hand will pull out some money from one Government trouser pocket and put it into another!

To put the latest 2024 auctions in perspective and thus understand the Government’s seemingly overt expectations from the exercise, this would be a good time to look at collections from previous auctions. The Government collected a record Rs 1,50,173 crore from 5G spectrum auctions in July 2022 and raked in a respectable Rs 77,814 crore in the March 2021 4G air-waves sale. This is a primary reason that this year’s expectations were high, and a reason that low collections are alarming from a national financial standpoint.

The saving grace for the government exchequer is that there is still time for Union Finance Minister Nirmala Sitharaman to revisit collections and expenditure numbers, and come up with a solution. Admittedly, it is unlikely that she will pull any miracle rabbits out of the General Budget hat, but some jugglery can still be managed to save the day and maintain market confidence, especially as she has the huge dividend pay-out by the Reserve bank of India to play around with.

The latest auction also throws up an important lesson – that while one can get a wounded tiger to roar and strut around, you can’t snatch from this hurting big cat its last meal or morsel; that would be expecting too much.