Cheaper spectrum & easier M&As for telcos

Written by fe Bureau | New Delhi | Updated: Nov 7 2013, 06:57am hrs
SepctrumThe government is hoping to get Rs 11,000 crore from the spectrum auctions in FY14 (Reuters)
With the Telecom Commission on Wednesday deciding to broadly go along with the sector regulators recommendations on the reserve price it has increased the rates by 18% for spectrum in the 1800 MHz and 25% for the 900 MHz bands interest in the sector is set to dial up again.

While the industry was clearly disappointed with the higher prices, telcos agreed the auctions could see good participation. The government is hoping to get Rs 11,000 crore from the spectrum auctions in FY14.

The TC also approved a liberal merger and acquisition policy enabling buyouts by larger telcos of mid-sized firms and paving the way for consolidation. A merged entity can have up to 50% market share in a circle and can retain up to 25% of the total spectrum assigned. The combined entity can hold up to 25 MHz of 2G spectrum and 10 MHz of 3G spectrum, allowing players to optimise their cost of operations.

The TC, however, did not endorse the 3% uniform spectrum usage charge (SUC) recommended by the Telecom Regulatory Authority of India for spectrum bought through auctions and a cap of 5% for that allotted administratively, although it has in principle accepted its relevance and significance. A decision is expected after discussions with the finance ministry. A uniform SUC holds the key to a successful auction planned by the government in January and also the future of M&As.

Moreover, the TC has stayed with the telecom bureaucracys insistence on auctioning 800 MHz spectrum and has decided to once again ask Trai for the reserve price to conduct auctions in this band. Whether Trai sticks to its view that the 800 MHz band must be liberalised first so that it can even be used by GSM telcos and not just those that offer CDMA services remains to be seen.

In increasing the base price by 18% and 25%, the TC has basically converted the value of spectrum for each circle computed by Trai as the base price. Trai had kept the reserve price at 80% of the value. The prices endorsed by the TC is around 50% lower than prices fixed during March auctions as against a 60% cut recommended by Trai.

While most of the policy issues troubling the sector seem to have been resolved, there is still ambiguity on the proposal for a spectrum swap between the telecom department and the armed forces to free up 15 MHz of 3G airwaves in the 2100 MHz band for commercial use.

This issue was not taken up by the commission as it was not on its agenda and is being pursued separately. If the government is able to release 15 MHz of 2100 MHz spectrum and auction it along with the 2G spectrum, its revenue accrual would increase manifold.

The TC has revised upwards by 25% the base price in the 1800 MHz band in eight circles of Delhi, Mumbai, Kolkata, Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. Accordingly, the new base price per MHz would be Rs 219 crore for Delhi, Rs 207 crore for Mumbai and Rs 73 crore for Kolkata. For the remaining 14 circles, the TC has gone ahead with the Trai recommended prices. Due to a hike in base price in the eight circles, the pan-India price has gone up by 18% to Rs 1,763 crore against Rs 1,496 crore recommended by Trai. In the 900 MHz band, the TC recommended price stands at Rs 359 crore for Delhi, Rs 327 crore for Mumbai and Rs 125 crore for Kolkata compared with Rs 288 crore, Rs 262 crore and Rs 100 crore, respectively, proposed by Trai.

The decision by the inter-ministerial panel, the highest policy-making body in the department of telecommunications came after it rejected the advice of its internal committee to raise prices by up to 80% in some cases. These recommendations will require the approval of the empowered group of ministers followed by one from the Cabinet. "We would have liked it if the commission had retained the price recommended by Trai. But even with the 15-18% increase in price, we expect good participation of operators in the auction," said Rajan S Mathews, director general of GSM lobby group COAI.

Analysts, however, expressed scepticism at the decision made by the TC on pricing. Hemant Joshi, partner, Deloitte Haskins & Sells said: Trai had appropriately sensed the business and market realities of the telecom companies and appropriately suggested to reduce the base price. The Telecom Commissions overturn of the recommendation seems to be not in sync with the market realities. This is likely to impact market sentiments and may have an impact on the participation in the upcoming auction.