Why spectrum auctions will not increase mobile data speeds

The just-concluded telecom spectrum auctions were muted. The companies balked at buying the pricey 700 megahertz (MHz) and 900 MHz spectrum. The government could sell just 965 MHz out of the 2,354.55 MHz put up for sale. It garnered just 11 per cent of the Rs 5.63 lakh crore it was expecting to raise. Vodafone, which had huge gaps in its 4G network, spent around Rs 20,000 crore; it was followed by Bharti Airtel, Reliance Jio and Idea Cellular.

The bands sold include 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz. The total quantity of the lower-frequency 800 MHz band was 73.75 MHz, out of which the government could sell only 15 MHz. The quantities of other bands sold were higher - 175 MHz in 1,800 MHz, 320 MHz in 2,100 MHz, 85 MHz in 2,300 MHz and 370 MHz in 2,500 MHz.

As the spectrum sold was primarily high-frequency spectrum, the quality of services may not improve much. Providing services using higher-frequency spectrum involves challenges due to lower indoor coverage and high operational and deployment costs. On the other hand, 700 MHz signals travel longer distances - this results in better coverage and lesser tower requirements. At the moment, bands such as 1,800 MHz, 2,300 MHz and 2,500 MHz are used to offer 4G services, whereas 2,100 MHz is used to deploy 3G services.

The biggest reason telecom companies didn't go for the expensive 700 MHz and 900 MHz spectrum is that they are already burdened with huge debt. As per ratings agency ICRA, the consolidated debt of the telecom sector stood at Rs 4,10,000 crore as on March 31, 2016. 

ICRA says despite the tepid response to the auction, the debt is likely to go up to Rs 4,25,000 crore. Buying 700 MHz and 900 MHz spectrum could have badly dented the already-stretched balance sheets of telcos.

At the India Economic Forum, Bharti Airtel Chairman Sunil Bharti Mittal said his company's return on capital was around 9 per cent, which is roughly the bank fixed deposit rate. Low returns and high debt levels make for a heady cocktail. 

The high level of interest in 1,800 MHz, 2,300 MHz, 2,500 MHz means the industry will have to invest more in rolling out networks. Its ability to efficiently utilise these recently purchased spectrum depends on its ability to allocate more resources for capex.

On data speeds, the industry's opinion differs. Mittal said he sees a tremendous improvement in broadband speeds.

"My company has picked up [spectrum] in most of the key places that [will] not only double broadband speeds but give four-five times speeds. In the coming months, [there will be] massive improvements across the country, not just for my company but all industry players who have actively participated in the auctions. India is finally getting out of fractured spectrum. It was earlier very small and fractured among 12 players. We are getting down to four players now and that means spectrum will not be an issue," he said.

Ultimately, the telecom sector is about getting more subscribers and generating revenues from them. With more users shifting to data, the speeds are bound to slow down. The investments in higher frequency bands are unlikely to make the wireless broadband experience better.