Consolidation underway in the Indian telecom sector

Recent spectrum deals indicate that telecom majors are vying to become the market leader in 4G services in the country.

The recent deals over acquiring spectrum by leading Indian telecom companies from other service providers is a clear indication that consolidation is underway in the sector.

The deals are expected to lead to some small and marginal companies exiting the industry, with new players taking part in the next round of auction of spectrum, likely to be held in June this year.

Though nearly a dozen telecom firms purchased spectrum in the five auctions held in 2010, 2012, 2013, 2014, and 2015 for as many as 22 circles in the country, most of the service providers could not utilise the spectrum to the maximum as it required huge investments to develop the infrastructure in their respective circles.

These deals are also part of the corporate strategies of the telecom majors like Reliance Jio Infocomm and Bharti Airtel to gain supremacy in the 4G services market, expected to cover the entire country by end of the year.

Reliance Jio Infocomm has been nurturing the ambition to become India's market leader in offering 4G services and already acquired the Indian unit of Russian conglomerate Sistema a.k.a. MTS, in November last year.

More recently, in one of the biggest spectrum deals in India, major telecommunications firm Bharti Airtel earlier this month acquired spectrum in the 1800 MHz band in six circles in the country from Videocon for $660 million, as part of its plans to roll out 4G services in more than four states.

By concluding the deal, Airtel can offer 4G LTE services in 19 of the 22 circles compared with the country's leading telecom service provider Reliance Jio Infocomm, which has the 4G spectrum in all 22 circles.

Bharti Airtel has now emerged as a major contender to Reliance for the number one position in the 4G market, but how this competition will benefit consumers is yet to be seen. Two other operators -- Vodafone and Idea Cellular -- have 4G spectrum bands in 5 and 12 circles respectively.

The six circles where Airtel plans to launch 4G services are Bihar, Haryana, Madhya Pradesh, Gujarat, and the East and West regions of India's most populous state Uttar Pradesh. The Indian government has allotted spectrum to Videocon for operations in these states and the licence is valid until December 18, 2032.

Senior analyst at India Ratings and Research Rakshit Kachhal said that the spectrum deals are expected to mark the beginning of exit of marginal players from the industry.

"The proposed merger of Reliance Communications Limited and Sistema Shyam Teleservices Limited is also a spectrum acquisition strategy and provides R-Com access to the premium 800 MHz band in eight circles with extended validity till 2033 as its own spectrum expires in 2021-22," he said.

According to him, the 800 MHz band would be excellent for long range and indoor coverage, thus gaining importance in an Indian context. Though the device ecosystem is limited for this band, it would be expanding fast.

"This band had been earlier used by the CDMA operators in India. However, under the new liberalised technology-neutral regime 800 MHz band gains importance for future 4G rollout of the operators," he added.

The Airtel-Videocon deal is said to be the biggest after the Indian government permitted the operators to enter into spectrum sharing/buying deals in November last year, and is viewed as a major step towards consolidation of the telecom industry in the coming months.

Early this year, Reliance Jio Infocomm Limited entered into an agreement with Reliance Communications Limited, owned by brothers Mukesh Ambani and Anil Ambani, for change in spectrum allotment in the 800 MHz band in nine circles from RCOM to RJIL, and for sharing of spectrum in the 800 MHz band across 17 circles.

"Access to enhanced spectrum footprint in the 800 MHz band will complement Reliance Jio Infocomm's best-in class LTE services rollout, providing increased network coverage and superior service quality. The agreement will also result in network synergies, enhanced network capacity, and will optimise spectrum utilisation and capex efficiencies," Reliance Jio Infocomm said in a statement, and added that that both operators anticipate considerable savings in operating costs and future investment in networks.

Sistema is offering mobile telephony services under the MTS brand in nine telecom circles and by acquiring the company, Reliance Jio Infocomm will get around 9 million customers to its subscriber base and approximately 1,500 crore rupees (approximately $230 million) of revenue every year.