The success of the ongoing spectrum auctions will depend on four players: Idea Cellular, Vodafone, Bharti Airtel and Reliance Jio. How aggressively they bid depends on whether they play to protect existing turf, or to damage their rivals'

The government today (4 March) began its auction of 2G and 3G telecom spectrum and is hoping to garner anywhere between Rs 80,000-1,00,000 crore. Sunil Mittal, Chairman of India’s No 1 mobile services company, Bharti Airtel, and one of the key bidders at this auction, says that even though prices may not scale the kind of heights they did in 2010, “the government won’t be disappointed by the outcome.”

Translated, this means Rs 80,000 crore is probably assured. Rs 1,00,000 or more will depend on how far the players with the largest interests at stake are willing to commit big money to retain their current spectrum in the prized 900 Mhz band while also bidding for 3G spectrum in the 2,100 Mhz band.

At the outset, it is fairly clear that the auction is crucial for some, and no so crucial for others. Of the major players who will be bidding for 2G and 3G spectrum, the stakes are highest for Kumar Birla’s Idea Cellular, which has nine circles coming up for renewal, followed by Vodafone (seven circles), Reliance Communications (seven) and Bharti (six).

The uncertain element in the bidding process is Reliance Jio, which has put in a large amount of earnest money (Rs 4,500 crore, the highest) to indicate it may be bidding for lots of spectrum. But a similar situation in 2014 did not see it bid too much. Tata Teleservices and Uninor, the remaining two bidders, may be in the ring either for some 3G frequencies, or to increase the total quantum of 2G spectrum available with them.

In this round, the bands on offer are 2,100 Mhz, where the reserve price is Rs 3,705 crore per Mhz of all-India spectrum, the expiring 800 Mhz and 900 Mhz bands, which will be heavily bid for, and 1,800 Mhz. The government’s reserve prices are Rs 3,646 crore per Mhz for 800 Mhz spectrum, Rs 3,980 crore for 900 Mhz, and Rs 2,191 crore for the 1,800 Mhz band.

Competition is expected to be keen as all players will seek to protect their existing spectrum, given that shifting customers to another band is costly and disruptive of existing business. All players would want to retain their hold on the versatile 900 Mhz band as far as possible. New players in broadband, like Reliance Jio, could also seek extra spectrum for various voice and data services, or to grab prime bands like 800 Mhz and 900 Mhz from the incumbents. The available spectrum in the 2,100 Mhz band is small - 5 Mhz, with 15 Mhz more promised when defence releases them – which could make bidding in this band sharper.

The player to watch will be Idea Cellular, which has the most to lose if it does not bid aggressively for its nine circles, which account for nearly three-quarters of it revenues. It will seek to retain its 900 Mhz band, since shifting to different bands will be troublesome. But if the other three major players – Vodafone, Bharti and Reliance Jio – bid aggressively, Idea will have to choose between letting go of some 900 Mhz bands in the smaller circles and/or opt for additional spectrum in different bands for future growth.

Vodafone will have to try and retain its seven circles, but, as a well-funded international player, it has the potential to not only keep its existing 900 Mhz spectrum, but also make it pricier for its main competitors – Bharti and Idea.

However, Bharti appears to have insulated itself substantially from having to make excessive bids this time, thanks to the fact that it bid for lots of additional spectrum last year itself. In February 2014, Bharti, Vodafone and Idea bid hard to retain their 900 Mhz spectrum in the key circles of Delhi, Mumbai and Kolkata, but Bharti also bid and won 15 circles in the 1,800 Mhz band.

Like Bharti, Reliance Jio also bid high in 1,800 Mhz last year, and got 14 circles. Since it already has 4G spectrum in the 2,300 Mhz band from its 2010 auction win, it will probably focus on wresting some spectrum in the 800 Mhz or 900 Mhz bands this time. It has enough spectrum to launch its 4G and voice services, and only needs some bids to succeed to add to its overall kitty.

Reliance Communications will have to try and keep as many of the seven circles that are up for grabs, but will find severe competition from Airtel, Vodafone and Uninor. As a player with weaker financials than the other major players, it may not bid too aggressively this time.

Tata Teleservices and Uninor are expected to be in the game only for marginal additions in spectrum. They may not go the whole hog to bid for high-priced spectrum.

In the end, the prices at the auction will depend on four players:

Idea’s aggression will depend on how much it wants to pay to retain its current 900 Mhz bands.

Bharti’s strategy will depend on a balance between the circles it would like to protect, and seeing if it can push up the cost of business for competitors by bidding in the earlier stages of the game and withdrawing towards the end.

Vodafone’s play may be similar to Bharti’s. It will be bidding both to protect its current circles and to make spectrum costlier for weaker rivals like Reliance Communications. Broadly speaking, Vodafone would want the field to narrow down to a few large players so that tariffs can stabilise and the business more profitable.

Reliance Jio's gameplan has the option of playing both to win and to spoil the game for others. It is a strong financial player with relatively low stakes in actually buying up too much spectrum.

This game promises to be interesting. Both players and their gameplans are ultimately unpredictable.