The government’s plan to garner Rs 5.6 lakh crore through sale of spectrum to telecom companies did not play out as expected. Only 40 per cent of the record 2,353 MHz airwaves that had been put up for sale was bought at a cost of Rs 65,789 crore. Cash strapped companies made bids for spectrum in the 1,800 MHz, 2,300 MHz and 2,500 MHz bands which can be used to provide high-speed 4G internet services. There were no takers for 700 MHz which was put up for sale for the first time because the initial price was considered too high and telecom companies wanted to reserve some cash in their war chests for the battle with Reliance Jio, which has altered the nature of the game by making data the base for usage.
Of the big players, Vodafone, which does not have a pan-India 4G presence spent around Rs 20,000 crore followed by Bharati Airtel with Rs 14,244 crore, while Reliance Jio purchase bandwidth worth Rs 13,672 crore. Idea Cellular, which also needs to expand its 4G footprint shelled out Rs 12,798 crore. Around half the money will have to be paid upfront and the remainder over a period of 10 years.
Will this aggressive bidding change anything for the consumer? Presently, mobile phone users have to grapple with call drops and slow and unreliable internet speeds. Since these problems are common to all existing players there is nowhere to go for a solution. The entry of Reliance Jio changed all this. Long queues were seen outside Reliance Jio outlets and telecom companies slashed data charges in order to retain customers. However, problems with call drops and slow internet speeds still persist, thanks to the reluctance of companies to invest in new technology and limit the number of customers to fit within the existing bandwidths. Reliance Jio’s entry has forced telecom companies to undertake a reality check and also simplify the plans on offer.
The limiting factors for telecom companies are bandwidth and base stations (towers). A telecom company might have sufficient towers but if it does not have enough bandwidth, connectivity becomes an issue. The reverse is also true. On an average each telecom tower can handle roughly 1,500 phone connections. The moment this number goes up calls start dropping. With telecom companies adding more bandwidth to their systems, connectivity and speeds ought to improve, especially with Reliance Jio jump starting changes in the sector.
The sector is saddled with a collective debt of Rs 3.8 lakh crore and that could be the reason why telecom companies did not go on a buying spree this time round. The government will now have to review the entry price levels of the remaining spectrum and conduct another auction, perhaps two years from now. That would give sector players enough time to build infrastructure, consolidate revenue streams and improve client satisfaction.
