Data foretell poor biz case for new 2G telcos

Written by Rishi Raj | New Delhi | Updated: Sep 12 2012, 05:53am hrs
Revenue figures of new mobile operators like Uninor, Sistema and Videocon do not seem to justify their enthusiasm for the upcoming 2G spectrum auctions. All three have declared their intention to bid, but their April-June gross revenues at R976.95 crore, R415.48 crore and R0, respectively, contrast sharply with the steep 2G base price of R14,000 crore. Their lacklustre record over three years after winning 2G spectrum at R1,651 crore in 2008 casts a cloud over their business case if they manage to start afresh with far costlier spectrum.

Even as the operators struggle to make a mark, the government loses in terms of revenue-share licence fee and spectrum usage charge. The revenue-share licence fee paid by the three firms during the period was merely R53.73 crore, R27.67 crore and R0, respectively.

Mobile operators pay a revenue-share licence fee of 6-10% of their adjusted gross revenue (AGR). The AGR excludes revenues from areas not directly linked to telecom services. The AGR of Uninor during the period was R614 crore, Sistema R309 crore and Videocon R0. The spectrum fee, which is 3-8% for the AGR of the operators paid by these three operators, was R20.47 crore, R9.91 crore and R0, respectively.

To put in perspective, during the same period, the gross revenue of Bharti Airtel was R14,605.44 crore, Vodafone R9,970.3 crore, BSNL R7143.49 crore, Idea R6,396.13 crore, Reliance Communications R3,995.77 crore and Tata Tele R3,671.61 crore. Their licence and spectrum fee payouts were also much higher.

Uninor, Sistema and Videocon hold three out of the nine licences granted by former telecom minister A Raja in 2008 and cancelled by the Supreme Court on February 2. The three companies have expressed their desire to continue operations by participating in the 2G spectrum auctions which begin on November 12. However, they have expressed concerns about the high reserve price at R14,000 crore.

Analysts see a dismal business case for these companies if they choose to remain in business at a much higher entry price, since they do not have 3G or broadband wireless access spectrum; so, all they have to offer is plan vanilla voice services.

Sistema Shyam is an exception with presence in high-speed dongles because it has CDMA spectrum, but for it, the auction base price is 1.3 times higher.

Latest Trai data show that during July, addition of mobile subscribers for the first time slipped into negative, with monthly additions at -2.21% at 913.49 million. In June, overall mobile subscriber base stood at 934.09 million. The trend of falling subscriber addition had started from April 2011 and accelerated later. The reason is the changing economics of mobile business. With the spectrum allocation criteria having shifted from subscriber-linked the higher the subscriber a company had the more spectrum it got to auctions, operators no longer have incentive to keep inactive subscribers on their networks. During the month, operators disconnected large number of connections because of inactive usage. Since the allocation of new number series has been tightened by the department of telecommunications, operators dont blink before disconnecting an inactive user and allocating the number to a new user.