Spectrum sharing positive but limited value, say analysts

TRAI move to help telcos to utilize spectrum better but aggressive bidding in future auction to continue

The euphoria over Telecom Regulatory Authority of India’s (TRAI) move to allow sharing of spectrum lasted for only a day. After shooting up by nearly five per cent, share prices of telecom companies like Bharti Airtel, Idea cellular and Reliance Communication were subdued and trading flat.

 

Broking firm Nomura in its report says that TRAI recommendation is incrementally positive for Indian telcos and should allow for more efficient use of spectrum on data, where capacity/quality is more critical and monetization has been a challenge.

 

TRAI’s move is in extension to its earlier one in February 2012 where sharing was allowed for 2G services and only for spectrum that were liberalised. This is now been extended to all spectrum bands and telecom services.

There are however, certain constraints that have been put in which takes the punch out of the recommendations. TRAI has proposed that only two operators can share spectrum in a circle, and even if part of the spectrum in that circle is shared it will be considered that entire circle’s spectrum is being shared. Analysts feel that this raises concerns about the functioning of the 3G ICR (intra-circle roaming) pact between Bharti Airtel, Idea Cellular and Vodafone.

 

Credit Suisse in their report on the development says that it is possible that the top three players continue with 3G ICR rather than get into spectrum sharing significantly. For large operators it is a trade-off between spectrum sharing and the opportunity cost of using the recently purchased spectrum for new technologies like 3G or LTE.

 

Citi Research however, feels that spectrum sharing recommendations increases capacity and lowers capital expenditure for the sector. In a report, the research firm says that if the recommendations are accepted by Department of Telecom (DoT), it would be positive to GSM incumbents since it helps increase network capacity in 3G/4G without incurring additional capex and help future spectrum bidding in check. Citi believes that 3G pooling can be immediate while for LTE (in 1800 MHz band), operators will only be able to pool once their spectrum is liberalised (operators pay the market price).

 

TRAI has also diluted sharing norms for the sector. As per the old guideline, operators were paying Spectrum Usage Charge (SUC) based on the higher slab arrived at by combining their spectrum. Under the new recommendation, both operators’ SUC will increase by 0.5 per cent of adjusted gross revenue (AGR).

 

Under the old guideline, total spectrum of both operators were combined to arrive at spectrum holding of each. As per the new one,50 per cent of the spectrum held by the other operator will be counted as additional spectrum being held by the first operator for purpose of calculating spectrum holding.

 

Though efforts have been made by TRAI in easing operations of telcos, will it change the dynamics of the sector? Idea Cellular’s chief executive Himanshu Kapania has been quoted in the Economic Times as saying that spectrum sharing will be considered only as another avenue to increase spectrum activity. Government can expect aggressive bidding in future round of spectrum auctions.