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Telecom - Spectrum auction 2021: Countdown begins with guidelines - ICICI Securities

Posted On: 2021-01-07 06:45:26 (Time Zone: Arizona, USA)

The Department of Telecommunications (DoT) has released its notice inviting applications for the spectrum auction scheduled to start on 1st Mar'21. Spectrum supplies across bands remain excessive (including spectrum coming up for renewal in CY21). Final auction prices are same as recommended by the regulator in CY18, and 800MHz reserve prices are 18.5% lower than the Oct'16 reserve prices, while 1800/2300MHz prices have been increased by 14.5% and 17.5% respectively. 700MHz band prices remain significantly high to find any bidders. We expect Bharti Airtel (Bharti) and Vodafone Idea (VIL) to renew their expiring spectrum only partially due to excess spectrum holding.

- DoT releases notice inviting applications. DoT has released a notice inviting applications (NIA) for the spectrum auctions (in 700, 800, 900, 1800, 2100, 2300 and 2500MHz bands), which are scheduled to begin from 1st Mar'21. The auction does not include the popular 5G spectrum band (3,300-3,600MHz), which was broadly known. The upcoming auction includes spectrum due for renewal in CY21 too. The auction guidelines are broadly in line with regulator's recommendation on spectrum reserve prices and block size. The key date to watch for is 5th Feb'21, the deadline for interested operators to submit their applications.

- Interest rate fixed at 7.3% (vs 9.3% in 2016). DoT continues to provide deferred payment option for successful bidders with upfront payment of 50% of final bid amount in 1800, 2100, 2300 and 2500MHz bands, and 25% in 700, 800 and 900MHz. Thereafter, operators would get moratorium for two years. They have to pay balance amount in 16 equal annual installments at an interest rate of 7.3% (vs 9.3% in the previous auction).

- Other highlights. 1) Auctions would be held simultaneously across the aforementioned bands; 2) validity of spectrum awarded would be for 20 years; 3) spectrum holding caps remain unchanged at 50% for sub-GHz (700, 800 and 900MHz), and 35% of total spectrum available in each circle; and 4) DoT may carry frequency reconfiguration or rearrangement of spot frequencies resulting in contiguity of spectrum and improve spectrum efficiency.

- 800MHz spectrum price cut; 1800/2300MHz prices increase vs Oct'16 reserve prices. Final reserve price for 800MHz spectrum in the upcoming auction is 18.5% lower than the Oct'16 price, which should benefit the relevant operators. In comparison, 1800MHz final reserve price for the upcoming auction is 14.5% higher than the Oct'16 reserve price, and 2300MHz price is 17.5% higher. Though 700MHz spectrum price has been cut by 43% to Rs66/MHz pan-India, it remains very expensive and is unlikely to find any bidders.

- Reserve price = final price? We expect the final auction prices across spectrums to be equal to the reserve prices due to: 1) significant spectrum supply, and 2) likely limited demand for expiring spectrums. Bharti has 57MHz in 1800MHz band and 6.2MHz in 900MHz band coming up for renewal in CY21, but it has amassed huge spectrum via M&As, which should significantly lower its renewal requirement in the upcoming auction. VIL has 46MHz spectrum in 1800MHz band and 6.2MHz in 900MHz due for renewal, and we expect very little renewal requirement for VIL as well.

Source: Equity Bulls

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