WHILE government leaders claimed this month’s telecom spectrum auction was not just a successful one, but ‘a big achievement,’ analysts and experts dismissed the ‘tepid’ industry response as a major failure.

The government had high hopes, setting a base price of Rs5.66tn for the entire spectrum sale; however, at the end of the auction, it received bids for just Rs657.89bn. The previous auction in 2015 had received bids worth Rs1.1tn.

India’s telecom sector is one of the fastest growing in the world and leading players see tremendous potential for growth. Unfortunately, the industry is facing a massive financial crisis. The gross industry debt adds up to a whopping Rs3.8tn, way above its annual revenues.

Analysts believe the industry is nearing its peak, with nearly a billion subscribers and flattening growth rates. But competition is growing and players are engaged in a bitter fight.

Reliance Jio, part of Mukesh Ambani’s Reliance group, has made an aggressive foray into the sector and has attracted the ire of most of the remaining players including Bharti Airtel, Vodafone and Idea. The only person backing Ambani is his younger brother Anil, who runs Reliance Communication; the two have patched up their differences and are now major allies.

The National Democratic Alliance (NDA) government was confident that the latest auction would trigger off yet another round of growth in the sector, with leading players willing to pay more.

Surprisingly, just seven of the 11 telecom operators participated in the bidding process. And all of them were selective

The entry of Reliance Jio had seen companies like Vodafone, an international telecom major — and the second-largest player in India — promise to invest $7bn in India. Vodafone turned out to be the most aggressive bidder.

The government was hoping to raise Rs5.66tn in the spectrum sale of 2,354.55 MHz of radio waves; but at the end of the sale, the government managed to sell just about 965 MHz.

Surprisingly, just seven of the 11 telecom operators participated in the bidding process. And all of them were selective, focusing only on the 1,800 MHz, 2,300 MHz and 2,500 MHz bands. All these bands can be used for 4G services, which are taking off in a big way in India.

Reliance Jio made a significant entry into the sector last month. Last week, it claimed it has set a world record by crossing the 16m subscriber mark in the first month of operations. According to the company, it has achieved this growth faster than any other telecom operator or start-up in the world including the likes of Facebook, WhatsApp and Skype.

“We are delighted and humbled by the overwhelming response across India to the Jio Welcome Offer,” said Mukesh Ambani, chairman, Reliance. “Jio is built to empower every Indian with the power of data.” Ambani aims to enroll 100m customers “in the shortest possible time and create a new world record.”

In the auction, Reliance Jio acquired the rights to use 269.2 MHz of spectrum across all 22 service areas for Rs136.72bn. “We have expanded our spectrum footprint, thereby significantly enhancing capacity of our all-IP data strong network and ensuring world class services,” said Ambani.

THE recent entry of Reliance Jio into the highly-competitive business has split the giant industry. While the three established players — Bharti Airtel, Vodafone and Idea Cellular (a Kumar Mangalam Birla company) — are the existing dominant players, their position is being seriously challenged by Reliance Jio.

He has the support of his brother, Anil — who controls Reliance Communications — and Aircel, which is to merge with Anil’s firm. The past few weeks have seen both sides battling it out fiercely, accusing the other of trying to sabotage their plans.

The established players have accused Reliance Jio of offering services it is not supposed to provide. They have been criticising Reliance through the Cellular Operators Association of India (COAI), an industry body representing majors including Bharti, Vodafone and Idea.

But the Mukesh Ambani-led Reliance Jio is no small player. It hit back at the established players, accusing them of not cooperating with new entrants.

The older players have even dragged the Telecom Regulatory Authority of India (Trai), the industry regulator, into the dispute; the COAI has accused the regulator of favouring Reliance.

Finally after several meetings, the COAI members were forced to accept Reliance Jio as a new member. It was also allowed to offer attractive schemes to members in the initial period.

Many of the established players are worried that Reliance Jio, part of the cash-rich Reliance group, will grab their share of the market by offering hefty discounts to consumers. In fact, telecom rates have plunged and all the leading players have been forced to slash rates and offer discounts to existing users in a bid to prevent them from moving over to Reliance.

The entry of Reliance Jio is expected to change the telecom sector dramatically. Already, state-owned former monopolies like MTNL and BSNL have become irrelevant in the telecom sector. Reliance Jio’s aggressive expansion plans — and hefty price cutting — is set to transform the sector, benefitting millions of customers, who will be able to access state-of-the-art services (including 4G connectivity) at attractive rates.

The decision of players like Bharti, Vodafone and Idea to selectively bid for the spectrum — mainly 1,800 MHz, 2,100 MHz and 2,300 MHz bands — while avoiding the high-priced 700 MHz, 800 MHz and 900 MHz bands have indicated that they are now getting wiser.

“Airtel has further strengthened its pan-India spectrum portfolio and secured its spectrum requirements for the next 20 years,” said a spokesperson of Bharti Airtel. “The company now has 4G and 3G spectrum in all circles, giving it the widest mobile broadband footprint across the country.”

Indeed, with the telecom players — both the established ones and the newcomers — ignoring the high-priced 700 MHz and 900 MHz bands, the government will soon have to decide on offering these at more realistic prices.

But with the Congress-led United Democratic Front government having been accused in the past by the BJP (when it was in the opposition) of slashing rates to allegedly help telecom firms, the ruling party is unlikely to cut the bidding rates in the near future.

Published in Dawn, Business & Finance weekly, October 17th, 2016