By Aparajita Gupta

New Delhi–As telecom operators prepare their bids for the next round of spectrum auctions, keenly watched is the 700 MHz band, being put on the block for the first time and seen as the most efficient airwave range. But will the high base price prove a dampener?

“Globally 700 MHz band is a much sought after band because of its better efficiency in terms of coverage — both indoor and outdoor,” said Rishi Tejpal, Principal Analyst for Telecom Business Strategy at Gartner.

“This band is being considered by many operators worldwide for 4G or long term evolution (LTE) deployment because of its better propagation characteristics. Majorly, 700 MHz band can be used for rural coverage in a cost efficient way,” Tejpal told IANS.

Mahesh Uppal, Director of telecom consultancy firm Com First, concurred.

“This spectrum range is more efficient than all others currently deployed by telecom operators. The 700 MHz signal travels much longer distances. This means a fewer towers are required than when operators use, say, 1800 MHz of 2300 MHz,” Uppal said.

Even the Telecom Regulatory Authority of India has a similar view regarding the 700 MHz band — more precisely from, 698 MHz to 806 MHz. It says this is the preferred band for LTE in markets like Asia-Pacific, Middle East, Europe and Americas.

“Spectrum in 700 MHz band is vital for proliferation of broadband in India. Due to its adoption by a large number of countries, harmonisation can be achieved, resulting in lower price of devices due to economies of scale and quick penetration of services,” it said.

But what has brought concern for the players is the perceived high reserve price for the band. In the Delhi circle, for example, the regulator has suggested Rs 1,595 crore per MHz, which most of the industry stakeholders consider to be steep. For pan-India, it is Rs 11,485 per MHz.

Uppal told IANS that the 700 MHz band will be predominantly used for 4G (LTE) services which will support broadband data, as well as Internet Protocol telephony such as voice over LTE network — measures that can bring major cost benefits to customers.

It is for this reason why several big telecom operators, notably Reliance Jio, whose services are due for commercial launch any time, and Bharti Airtel are eyeing this band. In fact, a recent HSBC Global Research report said the 700 MHz will prove to be decisive in the upcoming auction.

“Around 70 per cent of the planned receipts from auctions are driven by take up in the 700 MHz spectrum band. But except for the 4G entrants, none of the existing incumbents have the balance sheets to bid for pan-India 700 MHz spectrum at current prices, in our view,” the report said.

The overall base price of $83 billion for auctions is 2.8 times the industry’s present revenue.

“If 4G entrants end up buying pan-India 700 MHz in the auction, we believe it will ultimately rule out the possibility of any downward revision of 700 Mz pricing and limit the options for incumbents to have access to any sub 1 Ghz data spectrum in the near to medium term,” HSBC said.

It said 700 MHz spectrum in high subscriber density and large coverage markets like Bihar, Uttar Pradesh, Rajasthan and West Bengal is cheaper than 900 MHz and incumbent telecom companies have the option to add 700 MHz spectrum selectively.

“In other words, adding 700 MHz at current prices may not help 4G entrants to limit competition in the data market. Further ecosystem for 700 MHz band from an Indian context could be at least 3-4 years away. To sum up we see limited, selective demand for spectrum in 700 MHz band.”

But will there be enough buyers in the upcoming auction? The HSBC report says otherwise.

Proceeds from spectrum auction are likely to top no more than $12 billion, falling way short of the government’s target, as few companies have the money to justify the costs involved with varying demand for bands on offer.

“The government plans to raise $83 billion from the spectrum auctions, implying 2.8 times the present revenues from a sector with an average net/debt earnings before interest, taxes, and amortisation ratio of 4 times,” the report said.

“Our initial analysis suggests that total proceeds from spectrum auctions are unlikely to exceed $10-12 billion and we believe a lot of spectrum might remain unsold in 700, 2,300, 2,500 MHz bands. We see good demand for 1,800 MHz, selective demand for 2,100 and 700 MHz,” it added.

Crisil Market Research had a similar take — and explained the dilemma which operators face. It expected no more than 10 percent of the spectrum on offer in 700 MHz band being sold. Even if a player wanted to “conquer” the market, it did not expect more than 15-20 percent uptake at best.

“Better efficiency resulting in lower capex, global commonality supporting ecosystem development, and sustaining the quality of service to counter Reliance Jio’s 800 MHz are the key reasons that make 700 MHz so important for incumbents,” it said.

“But as the 4G subscriber base swells, the need for 700 MHz spectrum will pinch incumbents.”