With the burden of AGR dues & no procurement of Chinese gears, operators make a case for lowering rates
With the department of telecommunications (DoT) not proposing a reduction in reserve prices for spectrum auction, which is likely to take place sometime during the January-March period, it is the Union Cabinet which would decide on the matter when the issue is put up before it.
Sources said that the DoT has prepared a draft Cabinet note in which it has outlined the reserve price for auctions which also includes 4G spectrum, as recommended by the Telecom Regulatory Authority of India (Trai). It has also mentioned that it had asked the Trai to lower the prices but the latter stood its ground.
Sources said that given the circumstances, it is the Union Cabinet which would take a call whether prices should be reduced or not. In the past, the Cabinet has formed an inter-ministerial panel to look into such issues of pricing and payment modalities to ease the burden on the telecom companies.
There are two reasons due to which the Cabinet may look at reducing the reserve price. The first being that now it is known exactly how much operators like Bharti Airtel and Vodafone need to pay as their adjusted gross revenue (AGR) dues over the next 10 years, and second, since the operators are not supposed to buy equipment from Chinese vendors, their procurement prices may increase by around 15-20%.
According to industry observers, the high reserve price for spectrum is likely to be dampener as operators will find it hard to raise that much money. Due to the precarious financial condition of the telcos, the government had last year in November announced a moratorium of two years for installment payments for the past auctions.
The Trai in August 2018 had recommended reserve price for the next round of auctions, which were considerably lower than what was fixed for the 2016 auctions but it was still seen on the higher end, considering the industry’s financial position.
For instance, for the 5G band in the 3,300-3,600 MHz where the prices were given for the first time, at Rs 492 crore per MHz, for a pan-India minimum block of 20 MHz, operators will have to shell out Rs 9,840 crore, which is seen as steep. However, 5G auctions are not on the cards next year so a call on its final pricing may not be taken at this point of time by the Cabinet.
It is the premium 4G spectrum where the pricing matters. Here, while the Trai had reduced the reserve price by 43% compared to 2016 auctions, at `6,568 crore per MHz, for a pan-India 5 MHz block, still operators would have to shell out Rs 32,840 crore, which is seen as quite high.
In the 2016 auctions, the government had mopped a total amount of Rs 65,789 crore, 4% over the reserve price, from the country’s six operators who participated in the bidding. However, this was a lukewarm response as only 965 MHz spectrum got sold against a total of 2,353 MHz put up on sale, meaning that only 40% got sold.