Spectrum auction: Videocon playing its cards close to chest

New Delhi: For long, the Code Division Multiple Access (CDMA) industry has been panned in India for its myriad problems such as poor connectivity, issues with international roaming and lower revenues. But if one were to analyse trends in the upcoming spectrum auctions, it becomes clear that the 800 mhz spectrum which is currently used to offer this technology is still very much in demand among telcos.

Why else would Videocon Industries deposit Rs 220 crore as earnest money for 800 mhz spectrum band in these auctions and show its willingness to bid for 10 circles in CDMA?

Videocon Telecom CEO Arvind Bali declined to offer any comments for this story. But sources pointed out that the company plans to acquire spectrum in the 800 mhz band to eventually offer LTE technology or 4G services. These sources also pointed out that the company would initially offer high value data services to its existing customers using the 800 mhz band, which is far more efficient than the GSM band of 1800 mhz.

 Spectrum auction: Videocon playing its cards close to chest

800 mhz spectrum which is currently used to offerCDMA is still very much in demand among telcos. Why else would Videocon Industries deposit Rs 220 crore as earnest money for 800 mhz spectrum band in these auctions and show its willingness to bid for 10 circles in CDMA?

"What they have done could turn out to be a smart strategy since Videocon could bag efficient 800 mhz spectrum for 20 years and immediately deploy it for data customers and those willing to migrate to 4G. Data heavy services and 4G are the future of the telecom industry," this source said.

But a CDMA industry veteran wondered if a block of 2.5 mhz or 3.75 mhz CDMA spectrum would be enough for a new player to offer efficient data services in select circles. For 800 mhz, three blocks each of 1.25 mhz are up for auction in 19 service areas. So it is unlikely that Videocon would be able to bag 5 mhz contiguous spectrum in any circle, necessary for efficient LTE services.

An official at an existing CDMA player also spoke of growing buzz in the industry that Videocon may actually withdraw its application for CDMA spectrum by 4 November, which is the last day for withdrawals. "They applied for CDMA expecting us to also participate but we decided not to, at the last moment. This has taken them by surprise and Videocon may withdraw from CDMA auctions," this official said. So it remains to be seen if Videocon is actually serious about bidding for 800 mhz in the upcoming auctions.

As per applications submitted for the auctions, the only other interested party in 800 mhz is Tata Teleservices which wants to get back the three circles it lost last time after the Supreme Court cancelled 122 licenses earlier this year. Reliance Communications and Sistema Shyam have stayed away from the auctions entirely, leaving little doubt about Videocon and Tata Tele getting 800 mhz spectrum at the base price itself.

Besides, many telecom industry veterans have pointed out that Videocon may be a front for Reliance Industries, the sole player with pan-India spectrum to offer 4G services. Its strategy of bidding for less than 5 mhz CDMA spectrum to use for LTE technology would make sense only if it were to pair this with existing pan-India spectrum held by RIL.

Earlier this month, Firstpost had quoted a report by brokerage firm IDFC to say Videocon's 2G bid was surprising. This report has pegged the company's final outgo for at more than Rs 20,000 crore, depending on the circles it bids for (both GSM and CDMA). Videocon has applied for licences in 17 circles for 1800Mhz and 10 circles for 800Mhz band.

"Videocon Industries has a net worth of Rs 9,700 crore (March 2012). Clearly, an investment of 2 times the net worth in a maturing industry (where others have struggled to build a profitable business at 1/10th the cost) looks optimistic," IDFC had said in a note.

It does not rule out the possibility of Reliance Industries supporting Videocon's bid. Videocon promoter Venugopal Dhoot has already referred to a "cordial relationship" between the two groups and the fact that Videocon has taken advice from Mukesh Ambani on bidding for 2G auctions. Also, HFCL, the current partner of Reliance Infotel in BWA operations, was associated with Videocon Group in the past.

Updated Date: Dec 20, 2014 13:10:51 IST