Idea Cellular's spectrum purchase from Videocon Telecommunications Ltd for Rs 3,310 crore in two circles underlines the concerns faced by telecom operators over impending competition from the launch of 4G services by Reliance Jio, according to analysts.
Idea Cellular on Tuesday agreed to buy spectrum for two circles — Gujarat and Uttar Pradesh (West) — from Videocon for Rs 3,310 crore, which is double the amount paid to acquire spectrum for those circles in the March 2015 auction.
Idea, India's third-largest telecom carrier, said it would use spectrum bought from Videocon to roll out 4G LTE services in the two circles.
Although the spectrum purchase marks the first deal in the telecom sector after the government announced spectrum-sharing regulations in September, some investors will see Idea Cellular's move as a desperate attempt to defend its market share amid uncertainty over competition from Reliance Jio's launch, Mint quoted an analyst at a top institutional brokerage as saying.
Reliance Jio, the launch of which was recently delayed to the next fiscal year, is expected to spell competition to other telecom operators as it likely to offer data plans at cheaper rates to gain market share, according to Fitch Ratings.
Idea's share prices have declined 31% since mid-April this year, as investors remain concerned over competition from Reliance Jio and an increase in the company's capex estimates.
"Not knowing what Reliance Jio will do is perhaps worse than seeing an aggressive launch — at least Idea or others can act and react," said Nomura Research in a recent note.
The spectrum purchase will allow Idea Cellular to have 4G services in 12 circles, from which it derives 75% of its revenues. The operator can also provide complete range of mobile services across 2G, 3G and 4G segments in eight key circles with the purchase of spectrum.
