Column: Hobson’s choice for telcos

Mar 28 2014, 02:57 IST
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SummaryAppetite for the upcoming auction may be limited as the balance sheets are already highly leveraged

Before the latest round of spectrum auctions, the government had set a total revenue target of R40,874.5 crore from spectrum for FY14. Trai, in its recommendations, suggested a pan-India reserve price of R1,496 crore per MHz in the 1800 MHz band, which was down by 37% from the base price set in the previous auction. Similarly, in the 900 MHz band, Trai recommended a reserve price of R288 crore per MHz for Delhi, R262 crore for Mumbai and R100 crore for Kolkata. These rates were about 60% lower than the reserve price set in the previous auction. The existing players were harmed due to the government’s refusal to renew the spectrum—they had to take the auction route—and were forced to pay a high price for the spectrum bands for renewal.

Completion of the auctions is a welcome relief for industry, the government and all the stake holders in the industry. This spectrum auction proved to be successful where the government collected about R61,162 crore from the 2G auction which, to some extent, helped in controlling its fiscal situation. However, it has hurt the finances of the telecom players.

Telecom companies will pay 25% and 33% of the bid amount upfront in the 900 MHz band and 1800 MHz band, respectively. Thus, the government is estimated to obtain R18,296 crore by March 31 this year—the companies are allowed to initially pay an upfront amount and the remainder in 10 annual instalments after a two-year period. It will be reducing the burden of telcos to a certain extent.

The incumbent operators, whose licenses are expiring at the end of this year, had no choice but to bid and win spectrum to continue providing services. The prices paid by the operators in winning back spectrum they were holding is substantially higher than the amounts they originally paid and also the reserve price set by the government.

Impact of the auctions

Consolidation: The recent auction is going to decrease the number of telecom operators per service area from 12 to 6 or 7 as the bottom 6 telcos are likely to exit as they lack sufficient spectrum and financial muscle to remain viable. With high debt and inability to reduce (or pass on) the costs, the profitability of these players is likely to fall in the coming years. Ongoing consolidation in the industry is likely to take more time to materialise, as the companies have

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