Government’s Gain, Telcos’ Loss?

Industry experts say a high spectrum price is a dampener to government initiatives like Digital India, Smart Cities.

The yawning fiscal deficit of the government is likely to get some relief with the upcoming spectrum auction, slated for March 4, as it hopes to add Rs 80,000 crore to its kitty by putting airwaves in the 800, 900, 1800 and 2100 MHz frequency bands for sale.

But the big question is what repercussion it would have on the telcos, the end-consumers and the Digital India among other initiatives of the government. Telecom service providers are already reeling under huge debt of Rs 250,000 crore, dwindling revenues and at the same time, not to forget their huge investments for rolling out latest technologies.

Not only this, telecom experts believe that limited spectrum available for sale will further lead to a steep rise while bidding, diminishing the possibility of a viable business case. Operators have to shell out Rs 4,480 crore more just to acquire a 5MHz block of spectrum in the 900 MHz band. “The Government has also further jacked up its advantage by restricting the spectrum to 5MHz only with a promise that a further 15 MHz would be made available,” says D S Rawat, Secretary General, Assocham.

Experts also believe that the exorbitant pricing is also expected to slow down the telecom operators’ investment in the roll out of new technologies like 4G LTE and this can also lead to a negative impact on government’s umbrella initiatives like Digital India Programme in which telecom will play a pivotal role. At the same time, left with no options the telcos are likely to pass on the burden to the end consumers.

“There also lies a possibility of operators raising the tariffs to maintain a business case after paying a hefty amount in the auction,” says Sanchit Vir Gogia, Chief Analyst and CEO, Greyhound Research.

With government initiatives like the smart city project, digital India, etc, it is very important that the government take care of every aspect for making it possible. A high spectrum price is of course a dampener to such moves, says Girish Trivedi, co-founder, Monk Consulting.

The Cabinet has approved reserve price for 800, 900 and 1800 MHz spectrum (2G) at Rs 3,650 crore/MHz, Rs 3,980 crore and Rs 2,191 crore, which are 17.5%, 32.5% and 2.5% respectively, higher than the Telecom Regulatory Authority of India’s (TRAI) recommendation. The Cabinet has approved a reserve price of Rs 3,705 crore per MHz for 3G, which is 36% higher than the amount recommended by TRAI.

The industry has expressed its disappointment over the decision with COAI, Director General Rajan Mathew saying that such steep increases would lead to major impact on growth and expansion of quality networks in coming years and adversely impact the consumer as well national vision of faster broadband for all and Digital India initiatives.

In a letter to Telecom Minister Ravi Shankar Prasad, he said that “A total of 380.75 MHz in 800, 900 and 1800 MHz is being put to auction...We are, therefore, surprised and unable to comprehend the reason for such steep increase in reserve prices, particularly considering that this would have a major negative impact on the health of the already debt burdened industry besides impacting consumer tariffs, expansion of networks and quality of service of networks and thus, jettisoning the goal of Digital India.”

Industry body Assocham has warned the government against trying the steep prices and saying: "The bitter experience in the 2010 auction of 3G where Government gained huge sum but telecom industry suffered a huge set back with banks that supported the industry's bids were facing inability to pay back due mainly to 3G

One thing seems imminent that the upcoming spectrum pricing will be a setback for the telcos if prices are not reviewed and we are likely to see some tariff rise as telcos are expected to pass on the burden to the end consumers.

“Upcoming spectrum auctions are critical for the operators who are seeking to protect their existing market to stay in business as licenses begin expiring; as well as looking at new revenue opportunities,” adds Jaspreet Singh, Director, Advisory Services, Ernst& Young.

The high prices have also drawn flak from global bodies too. The global association of GSM telcom companies GSMA has warned that limited amount of 3G spectrum with exorbitant prices could have dire consequences for telcos in the country and India's digital inclusion plan.

Tom Phillips, Chief Regulatory Officer, GSMA, said that the “authority was concerned with the actions of the Telecom Commission, the highest decision making body in the communications ministry, that has decided to set Rs 3,705 crore as the reserve price for an airwave unit in the 2100 Mhz band, which is 36% higher than that suggested by India's telecom regulator.”

It should be noted here that India’s spectrum charges are costlier as compared to other countries. According to a 2012 report, calculations factoring in the ARPU variance suggest that India's 2G spectrum in the 1800 MHz band was 44 times costlier than the price discovered in Singapore. Similarly, Trai's proposed price for the 800 MHz spectrum was over five times higher than Germany, nearly 15 times more than Sweden, and almost 13 times higher than France.

As far as the 2100 MHz frequency band is concerned, TRAI has suggested a reserve price of Rs 2,720 crores per MHz but an inter-ministerial Telecom Commission has sent the issue back to the TRAI asking it to reconsider its recommendation. The DoT has claimed that it should be Rs 3,999 per MHz based on inflation indexing of what was received at the last auction and other considerations.

In December 2015, seven licences each of Idea Cellular and Reliance Communications, four licences of Bharti Airtel and six licences of Vodafone will expire after which they should be renewed. Telecom operators such as Vodafone India, Bharti Airtel, Idea Cellular, Reliance Jio Infocomm are expected to participate in the spectrum auction in February 2015.

Krishna Mukherjee

x-krishnam@cybermedia.co.in