 "Impact of spectrum costs on tariffs will be mere 1.3 paise per minute: Prasad")
“I am seeing a huge campaign that mobile rates will go up. A person very familiar with the telecom sector has given me an analysis. The spectrum will be with operators for 20 years. According to the analysis, the annual load on telecom operators will be about Rs 5,300 crore...and (it will lead to a rise of) 1.3 paise per minute for a call,” Prasad said.
He also announced the details of the auction, following the Supreme Court on Thursday allowing the government to finalise the spectrum auction bids and collect the initial payment, worth Rs 28,872.77 crore, by March 31. The court, however, said the final allocation would be subject to the decision of the court after hearing all parties.
“I very earnestly appeal to the companies to pay before March 31; national revenue is equally important for growth and India’s image,” he said after announcing the auction results on Thursday. According to norms, winning bidders will get 10 days to make the initial payments, which account for about a third of the total bid amount.
If telecom operators do not pay by March 31, the government might miss its target to collect Rs 45,471 crore from telecom sector this financial year.
“My department was particularly singled out for 2,100 MHz…that you ought to have taken 15 MHz additional. I was criticised for that. We have offered 85 MHz in the 2,100-MHz band, of which 15 MHz in three places remained unsold. Therefore, we were right,” Prasad added.
A total of 22 licences of these three operators are due for renewal in 2015-16. These operators have spent most of their money in acquiring spectrum in the 900-MHz band, to regain spectrum in circles where their licences are to expire, according to data released by the Department of Telecommunications (DoT).
Aditya Birla Group firm Idea Cellular, India’s third-largest mobile operator, emerged as the most aggressive bidder, with a total commitment of Rs 30,306.98 crore. Nine licences of Idea Cellular are to expire in 2015-16.
Bharti Airtel was the second-largest bidder in the auction, with an overall bid amount of Rs 29,130.20 crore, followed by Vodafone India at Rs 25,959.74 crore. Licences of Bharti Airtel are up for renewal in six circles and Vodafone in seven. Gopal Vittal, managing director and chief executive (India & South Asia), Bharti Airtel, said, “We have secured a 20 year road map and have a strong platform to lead the ‘Digital India’ story. However, the auction design and the scarcity of spectrum have resulted in exorbitant bids to secure the spectrum, particularly in renewal circles, where huge investments have already been made on the assurance of a continuity of business enshrined in the licenses issued by the DoT. We hope in future auctions, the government makes available adequate spectrum by securing it from agencies and operators that are underutilising this vital resource.”
He added the company would offer 3G and 4G services across the country after it got fresh spectrum.
The company said it had the capability to operate on both TD-LTE and FD-LTE technologies in its spectrum bands, as well as on conventional 2G/3G networks.
Reliance Communications also bid in the same bands, committing Rs 4,299.13 crore. Tata Teleservices bought Rs 7,851.33 crore worth of spectrum in the 800-MHz and 1,800-MHz bands, while Aircel will pay Rs 2,250 crore for spectrum in the 1,800-MHz band. Though Telenor’s India arm participated in the auction, it did not secure any spectrum.
Marten Pieters, managing director and chief executive of Vodafone India, said, “With the spectrum acquired in this auction, we have ensured the continuity of our business and increased our capability to provide high-speed 3G coverage to more areas. Vodafone has committed a total of about Rs 25,800 crore in this auction. This is in addition to the Rs 75,000 crore we have already invested in the past five years. We will continue to invest in building our network in the coming years to harness the potential of the spectrum won. We remain committed to providing seamless connectivity and superior communication services to our customers and will expand our 3G service from nine to 16 circles. We hope in the future, the government will ensure adequate spectrum is made available to achieve the vision of ‘Digital India’.”
Successful bidders will have to pay less than a third of the total bid amount upfront within the next 10 days. While Idea Cellular’s total outgo is the highest, Bharti Airtel will have to pay the highest sum upfront. Upfront, Airtel will pay Rs 7,832.58 crore, followed by Idea Cellular (Rs 7,790.10 crore) and Vodafone India (Rs 6,867.93 crore).
According to data released by the DoT, 418.05 MHz of spectrum was sold in the auction. The highest money will come from the 900-MHz band, for which prices soared compared to the reserve price in all 17 circles. According to DoT data, Rs 72,964.54 crore will come from the 900-MHz band, almost double the overall reserve price of the spectrum sold. Prices almost doubled in the 800-MHz band.
“High spectrum prices are credit-negative for operators because their debt levels and cost structures will increase, while financial flexibility to make additional investments will decline, possibly slowing the roll-out of 3G/4G networks in India. Though we expect companies to raise rates to recover higher costs, we believe this will be gradual, leaving their balance sheets bloated for some time. Still, recovery of costs will ultimately continue to rely on increasing demand for 3G data services,” said Annalisa Di Chiara, vice-president, Moody’s.
According to a note by equity research firm IDFC, Idea has managed to renew 900-MHz in all nine circles, add 4G in four circles (Kolkata, Rajasthan, Odisha and Tamil Nadu) and expand its 3G footprint in five more circles. Bharti Airtel, besides retaining its 900-MHz spectrum, might have added spectrum in that band in a few more circles at the cost of RCom, and expanded its 3G footprint by four-five circles, it added.
Former Vodafone regulatory head T V Ramachandran, currently chairman (telecom council), Associated Chambers of Commerce and Industry of India, said, “The telecom sector, already saddled with nearly Rs 2.5 lakh crore, is now going to helplessly see it mount to nearly Rs 3.5 lakh crore. Consumer rates are bound to rise significantly but due to the level of hyper-competition here, the increase will not be adequate to cover the higher cost. Inevitably, cash-strapped companies will be unable to expand or roll out as required,” he said. Those desperately seeking to be connected would remain underserved, he said.
Shares of Idea Cellular closed at Rs 180.40, up 4.04 per cent, on Thursday. Bharti Airtel closed with gains of 0.98 per cent, at Rs 398.70. The RCom and Tata Teleservices stocks, however, were down 1.23 per cent and 0.26 per cent, respectively.