 "Trai's recommendations: Cheer for old telcos, worry for new")
The recommendations of the Telecom Regulatory Authority of India (Trai) on Monday seems to be a mixed bag for the telecom industry. While the suggestions could prove a bonanza for the incumbent players like Bharti Airtel, Vodafone, BSNL and MTNL, the new GSM operators like Videocon Telecommunications, Telewings (Telenor) and CDMA ones like Sistema Shyam would be adversely affected. Idea Cellular, another incumbent telco, too, would gain but much less than its peers.
For Reliance Communications and Tata Teleservices, the dual-technology players offering both GSM and CDMA services, the regulator’s suggestions would not be very beneficial as those appear to be scuttling CDMA growth. Also, there would be very little for them in a flat rate for spectrum usage charges (SUC).They might, however, gain if they choose to acquire more spectrum, as the auction price has been cut. The story could be similar for broadband wireless access (BWA) players, such as Reliance Jio, which are planning to launch 4G services.
Besides, the telecom operators — especially the new GSM and CDMA players — that had bought spectrum in the 2G auction of November last year would lose around Rs 4,000 crore, if the substantially reduced base price recommended by Trai becomes the market price for 1,800-MHz spectrum in the upcoming auctions.
Those that might paid more in November (than they would if they were to buy now) include Sistema Shyam. It could have shelled out Rs 1,400 crore more for CDMA licences in eight circles. Videocon Telecommunications and Telewings, which got GSM spectrum in six circles each, could have, respectively, paid around Rs 500 crore and Rs 1,300 crore more. Incumbent telcos Vodafone might have taken a minor hit of Rs 175 crore, while Idea Cellular, which won licences in seven circles, might have forked out an additional Rs 555 crore in November last year.
<b>New players not amused</b>
The new operators are not amused. Videocon Telecommunications CEO Arvind Bali, says: “If we had known Trai was going to change the policy to make 900-MHz spectrum so cheap and to ensure enough was available for auction, we would not have bid for the 1,800-MHz band. Now we are stuck. The government should refund the difference to make it viable for us to operate.”
The Trai move is even seen killing the growth plans of CDMA players. The worst-hit would be Sistema Shyam, which, unlike RCom and Tata Tele, does not have any GSM spectrum to fall back on. Ashok Sud, director-general of Auspi, the industry body that represents CDMA firms, says: “The regulator has virtually closed the growth door for CDMA operators. For instance, Sistema, which has only 4.75 MHz of spectrum, will now have no spectrum available to try new data technologies. It will be stuck at this level for life.” To add to the woes, he says, the regulator wants to give part of the 800-MHz spectrum to GSM players.
CDMA firms, too, say they might have re-strategised if they knew the prices were going to fall within a few months. One says: “We were forced to close operations in many circles due to high base price for spectrum in the November auction. We would not have done so if we had known the price would be lowered.”
The incumbent operators, on the other hand, would gain immensely, not only from the lowering of base price — by 37 per cent for 1,800-MHz — but also because of lower SUC rate.
The SUC would be fixed at a flat three per cent rate, instead of the range of three to eight per cent earlier. Under the earlier arrangement, the incumbent players would have had to pay more charges because they held more spectrum. According to experts, most new GSM players and dual-technology operators with up to 4.4 MHz spectrum (except in a few cases) already pain at the minimum rate. So a flat rate at the low end of the range does not benefit them. But incumbents, which paid at an average rate between five and six per cent, would see their bill get substantially lowered.
Based on rough calculations, and assuming revenue growth of seven per cent, incumbents like Bharti, Vodafone, Idea would be able to save Rs 70,000 crore over a 20-year licence period.
The new SUC regime would also hit Mukesh Ambani’s Reliance Jio and Tikona Digital Networks, which have BWA spectrum, as their SUC rate will go up from the current one per cent to three per cent.
Additionally, the one-time spectrum charge — paid by incumbent operators for holding spectrum beyond 4.4 MHz — will come down significantly, as it is based on the spectrum price discovered through bidding. Telecom experts say the benefit for incumbent telcos under this could be to the tune of Rs 9,000 crore. The move would be beneficial for Bharti, Vodafone, Idea, MTNL and BSNL, as well as Aircel.
Opinion, however, is divided on whether the incumbents would benefit from the reduction of around 60 per cent in the base price for 900-MHz spectrum in Delhi, Kolkata and Mumbai. Competing telcos say the incumbent operators like Bharti, Vodafone, BSNL and Loop will together save about Rs 11,000 crore if they bid and win five MHz of spectrum in the band. That is the difference between the older price recommended by Trai and the new price.
But there are others who say Trai’s move to reject the demand to reserve at least 2.5 MHz of 900-MHz spectrum and opening up the entire band for auction could prove a dampener. A Goldman Sachs report raises some key concerns. It says: “We believe this increases the risk of Bharti and Idea losing the entire 900-MHz spectrum and, so, spending more on capex and opex to migrate subs to the new network.”
The move could also prove disruptive, as new players, including Reliance Jio, could now join the party. “The key risk for GSM incumbents will be the participation in the 900-MHz auction of RIL Jio, which currently suffers from its spectrum holding in the 2.3-GHz band,” says an HSBC Securities report.
Auspi’s Sud acknowledges that it would also give some scope for dual technology and even CDMA players could join in, as the band can be used for 4G services.
For Reliance Communications and Tata Teleservices, the dual-technology players offering both GSM and CDMA services, the regulator’s suggestions would not be very beneficial as those appear to be scuttling CDMA growth. Also, there would be very little for them in a flat rate for spectrum usage charges (SUC).They might, however, gain if they choose to acquire more spectrum, as the auction price has been cut. The story could be similar for broadband wireless access (BWA) players, such as Reliance Jio, which are planning to launch 4G services.
Besides, the telecom operators — especially the new GSM and CDMA players — that had bought spectrum in the 2G auction of November last year would lose around Rs 4,000 crore, if the substantially reduced base price recommended by Trai becomes the market price for 1,800-MHz spectrum in the upcoming auctions.
Those that might paid more in November (than they would if they were to buy now) include Sistema Shyam. It could have shelled out Rs 1,400 crore more for CDMA licences in eight circles. Videocon Telecommunications and Telewings, which got GSM spectrum in six circles each, could have, respectively, paid around Rs 500 crore and Rs 1,300 crore more. Incumbent telcos Vodafone might have taken a minor hit of Rs 175 crore, while Idea Cellular, which won licences in seven circles, might have forked out an additional Rs 555 crore in November last year.
<b>New players not amused</b>
The new operators are not amused. Videocon Telecommunications CEO Arvind Bali, says: “If we had known Trai was going to change the policy to make 900-MHz spectrum so cheap and to ensure enough was available for auction, we would not have bid for the 1,800-MHz band. Now we are stuck. The government should refund the difference to make it viable for us to operate.”
The Trai move is even seen killing the growth plans of CDMA players. The worst-hit would be Sistema Shyam, which, unlike RCom and Tata Tele, does not have any GSM spectrum to fall back on. Ashok Sud, director-general of Auspi, the industry body that represents CDMA firms, says: “The regulator has virtually closed the growth door for CDMA operators. For instance, Sistema, which has only 4.75 MHz of spectrum, will now have no spectrum available to try new data technologies. It will be stuck at this level for life.” To add to the woes, he says, the regulator wants to give part of the 800-MHz spectrum to GSM players.
CDMA firms, too, say they might have re-strategised if they knew the prices were going to fall within a few months. One says: “We were forced to close operations in many circles due to high base price for spectrum in the November auction. We would not have done so if we had known the price would be lowered.”
The incumbent operators, on the other hand, would gain immensely, not only from the lowering of base price — by 37 per cent for 1,800-MHz — but also because of lower SUC rate.
The SUC would be fixed at a flat three per cent rate, instead of the range of three to eight per cent earlier. Under the earlier arrangement, the incumbent players would have had to pay more charges because they held more spectrum. According to experts, most new GSM players and dual-technology operators with up to 4.4 MHz spectrum (except in a few cases) already pain at the minimum rate. So a flat rate at the low end of the range does not benefit them. But incumbents, which paid at an average rate between five and six per cent, would see their bill get substantially lowered.
Based on rough calculations, and assuming revenue growth of seven per cent, incumbents like Bharti, Vodafone, Idea would be able to save Rs 70,000 crore over a 20-year licence period.
The new SUC regime would also hit Mukesh Ambani’s Reliance Jio and Tikona Digital Networks, which have BWA spectrum, as their SUC rate will go up from the current one per cent to three per cent.
Additionally, the one-time spectrum charge — paid by incumbent operators for holding spectrum beyond 4.4 MHz — will come down significantly, as it is based on the spectrum price discovered through bidding. Telecom experts say the benefit for incumbent telcos under this could be to the tune of Rs 9,000 crore. The move would be beneficial for Bharti, Vodafone, Idea, MTNL and BSNL, as well as Aircel.
Opinion, however, is divided on whether the incumbents would benefit from the reduction of around 60 per cent in the base price for 900-MHz spectrum in Delhi, Kolkata and Mumbai. Competing telcos say the incumbent operators like Bharti, Vodafone, BSNL and Loop will together save about Rs 11,000 crore if they bid and win five MHz of spectrum in the band. That is the difference between the older price recommended by Trai and the new price.
But there are others who say Trai’s move to reject the demand to reserve at least 2.5 MHz of 900-MHz spectrum and opening up the entire band for auction could prove a dampener. A Goldman Sachs report raises some key concerns. It says: “We believe this increases the risk of Bharti and Idea losing the entire 900-MHz spectrum and, so, spending more on capex and opex to migrate subs to the new network.”
The move could also prove disruptive, as new players, including Reliance Jio, could now join the party. “The key risk for GSM incumbents will be the participation in the 900-MHz auction of RIL Jio, which currently suffers from its spectrum holding in the 2.3-GHz band,” says an HSBC Securities report.
Auspi’s Sud acknowledges that it would also give some scope for dual technology and even CDMA players could join in, as the band can be used for 4G services.
WINNERS
Bharti Airtel, Vodafone & Idea Cellular
- Spectrum charges: Lower for the 1,800-MHZ and 900-MHz bands
- Usage charges & one-time fee: Flat 3% SUC to bring down cost; firms to also save on one-time spectrum charge beyond 6.2 MHz held
- Flip side: Since there is no provision for reserved 900-MHz spectrum, firms will have to bid and win back the spectrum they currently hold; if Idea Cellular were to bid for 2G spectrum now, it would have to pay much less than it shelled out in the November 2012 auction
Sistema Shyam: No growth path for CDMA spectrum
- If it were to bid now, it would have to pay Rs 1,400 crore less than it earlier did for the spectrum
- Cannot launch high-speed data service to take on 4G
Videocon: Paid more for spectrum in November 2012; would not have bid for the 1,800-MHz band if it knew 900-MHz spectrum was to be available at a cheaper rate
MIXED BAG
RCom: Benefits from lower spectrum price but little for it in flat SUC. No CDMA growth path
Reliance Jio: Can bid for the 900-MHz band, which is more efficient than the spectrum they planned to operate 4G with; but change in SUC to add to its cost
Tata Teleservices: No growth path for CDMA but will benefit from low spectrum price