Vodafone India has said that the telecom industry has reached a point where annual tariff hikes are needed to sustain itself.
"We have had declining tariffs for 18 years; this cannot be sustained forever. We believe the point has come where we will have to increase our tariffs every year, depending on cost levels," Vodafone India managing director and executive officer Marten Pieters said.
He said payments for spectrum in the just-concluded auction will be funded by debt and to pay for the loans, either tariffs need to go up or service levels and investments have to be cut back. Bharti Airtel, Vodafone and Idea Cellular, the three biggest mobile service providers in the country, and Reliance Jio were among eight companies that bid a combined R61,162 crore for spectrum in the 900 MHz and 1800 MHz bands offered by the government during a 10-day auction that ended on February 13.
"The industry has not yet recovered from the excesses of the 2010 auction and this auction, combined with others expected in the next couple of years, will worsen the industry's health further," Pieters added.
The value of the spectrum at this month's sale was R47,933.40 crore at the reserve price. Companies can pay part of the amount upfront and the rest in instalments. "If you look across the world, spectrum in India is expensive: We pay a lot per MHz in an auction and then 5% of revenue in the form of spectrum usage charges. This will invariably have consequences," Pieters said.
Telecom operators have been cutting back on freebies and discounted minutes to maintain profitability. Analysts say this trend may continue as they have to pay for the fresh spectrum purchases.
"We have always maintained over the last few quarters that there is room for reduction of discounted minutes and a gradual movement up of voice realisation," Bharti Airtel (India) joint managing director and chief executive officer Gopal Vittal said after the December quarter results.