The draft National Telecom Policy lacks clarity on spectrum pricing.
The draft National Telecom Policy (NTP), though positive on intent, has left many questions unanswered, especially those concerning the spectrum issue. The key positive takeaways from the policy are the one-nation-one-licence framework and the full mobile number portability. While the first means customers wouldn’t have to pay roaming charges and calls across the country would be treated as local, the second — in the absence of ‘circles’ — will help customers retain their numbers irrespective of where they intend to relocate within the country. The fallout of a single-licence policy is negative for telecom companies, who could lose out on up to Rs 2,000 crore in revenue, unless they raise tariffs or volumes rise to balance out revenue loss.
India’s largest wireless service provider, Bharti, for example, gets eight per cent of its domestic revenues from roaming charges, half of which comes from domestic roaming. So, in the worst-case scenario, it loses out on four per cent of domestic wireless revenues. Similar is the case with Idea Cellular. Due to a lower proportion of roaming charges, dual technology players such as Reliance Communications are likely to be impacted less. Given that the draft talks about an exit policy, a consolidation in the sector could strengthen incumbent operators who have raised tariffs in the recent past.
The Street was keen to understand the implications of the policy as far as spectrum management goes and its possible impact on key players. Given the acute spectrum scarcity, the policy is on the right track in allowing trading, sharing and pooling of spectrum. This would be a win-win, both for companies with excess spectrum — who can share it with others and earn from it — and those needing it to offer services. Also, the availability of 500 MHz spectrum over the next decade should aid players in hitting the market with latest offerings, aid convergence and expand the subscriber base.
The draft policy talks about delinking spectrum from future licences and allocating it at market-linked prices. This means costs could escalate for new and existing firms, encouraging only serious players. Pricing is a problem, as there is no definition of what market-linked means. So far, the only benchmark is the 3G auction prices. If they were to be kept as a barometer, it would be negative for the incumbents.
Some forward looking bits in the draft policy are: focus on improving data services/broadband, rural connectivity and infrastructure status. While the first two will bring new applications within the reach of rural consumers and, in turn, create a revenue stream for telcos over the long term, infrastructure status will translate into tax breaks and could attract investments, especially in the capital-intensive telecom tower business.
Telecom stocks have outperformed broader markets over the last few months. While they reacted positively as the policy was being announced by the telecom minister during market hours, the lack of details may limit further gains.
