There is a lot at stake at this year’s telecom spectrum auction, which is scheduled to begin from October 1, 2016. Last week, Vodafone was all over the news when it received its highest-ever foreign investment from its UK parent company—a whopping Rs 47,700 crore ($7.12 billion).
To put this year’s auction and investments in perspective, let us first examine the FDI equity share inflow in the telecom sector for the past 15 years.
Graph 1: FDI equity inflow for telecom from 2000-01 to 2015-16
In the last 15 years, the telecom industry received a total of $18.4 billion as FDI equity inflow, making it the fourth highest sector attracting foreign investments. However, it showed a 54 percent drop last year. After the Vodafone investment, this drop will see a huge spike. Mauritius topped the list of the highest FDI source for India with almost $12 billion (65.3 percent of the total investment) over the last 15 years.
Here are a few examples that contributed to the above figures. Swedish telecom equipment maker Ericsson announced the introduction of a new radio system in the Indian market. This was a step in the direction of providing 5G services.
In 2015, Foxconn, famously known for its large-scale manufacturing of Apple devices, signed a Memorandum of Understanding with Maharashtra to invest $5 billion over the next three years for setting up a manufacturing unit between Mumbai and Pune.
Coming back to this year’s airwave spectrum auction, vendors and IT service providers are also closely following the auction because of all the investments that are expected to pour in.
In a previous interview with Computerworld India, Huawei India CEO Jay Chen said that he was optimistic about this year’s auction. “We believe that this year’s auction will boost 4G business, in turn bringing a lot of opportunities for vendors,” he said.
As of now, seven players have enrolled themselves in this telecom blood bath—Idea Cellular, Vodafone India, Bharati Airtel, Aircel, Tata Teleservices, Reliance Communications, and Reliance Jio Infocomm.
But why has this year’s auction become high profile? The answer—Reliance Jio. It’s a no-brainer that investment in Vodafone was because of the hype generated by Reliance Jio.
What makes this year’s allocation even more interesting is the availability of the 700 MHz spectrum. This premium band is sought after by most providers for future roll out of 5G services; however, currently the country doesn’t have any specific infrastructure that can support the 700 MHz spectrum. With the spectrum allocation, several key telecom players will be looking at vendors and more foreign investments to help them scale up the telecom infrastructure in the country.
A lot of money is expected to be spent at this year’s auction. Reliance Jio has deposited around Rs. 6,500 crore as earnest money ahead of the auction. According to credit rating agency Crisil, telecom companies may spend approximately Rs 1 trillion ($15 billion) in auction, 75 percent of which may come from private companies.
After last year’s steep decline in foreign investment, we can be sure that FDI in telecom will now see a new high. But will telecom become the majority carrier for foreign investments in India? Only time will tell.