Spectrum auctions started with strong demand for spectrum in the 900MHz band. At day 1 auction closing prices, Bharti Airtel (Bharti) and Idea Cellular (Idea) will have to spend INR78bn and Rs 165 billion, respectively, to secure 5MHz spectrum in each of the circles where their licence renewal is due in 2015-16.

In the 1800MHz band, demand was weak with no takers in 7 circles out of 15 where spectrum was available. In 800MHz spectrum, demand was limited to 9 out of 20 circles where spectrum was offered. In 2100MHz spectrum, bids were made in 13 out of 17 circles where spectrum was offered. On day 1, the government received bids worth Rs 600 billion.

Edelweiss Research said, "However, with cost of renewing 5MHz spectrum in each of the 9 circles escalating by 24.9% and 29.8%, respectively, we believe there is little headroom for Idea to bid further. It may look to skip some circle, such as Karnataka, where it has bought sufficient 1800MHz spectrum and has relatively low revenue market share. We believe spectrum auctions will provide much needed clarity on expected debt levels of the operators. We maintain 'Buy/SO' on Bharti and Idea.

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