Govt may Fall Short of Sales Tar­get in Spec­trum Auc­tion Avail­abil­ity of air­waves in mar­ket, ab­sence of con­ti­nu­ity chal­lenges & higher base price may af­fect de­mand

The Economic Times - - Companies - Kalyan.Par­bat@ times­group.com

Kolkata: The up­com­ing spec­trum sale is likely to elicit luke­warm re­sponse as there is no real com­pul­sion for In­dia’s top tel­cos to bid ir­ra­tionally since there are am­ple air­waves in the mar­ket and no busi­ness con­ti­nu­ity chal­lenges. The 700 MHz band, con­sid­ered best for 4G, could have drawn strong in­ter­est, but the base price sug­gested by the sec­tor reg­u­la­tor is con­sid­ered too ex­pen­sive by in­dus­try and an­a­lysts, de­spite the eas­ier fi­nanc­ing terms pro­posed.

They feel that the purely need-based bid­ding could see the govern­ment rake in fairly mod­est auc­tion pro­ceeds, way be­low the over .₹ 160,000 crore it ex­pects to gen­er­ate from the sale, as per Bud­get es­ti­mates. Of this, the es­ti­mates fac­tor in roughly .₹ 50,000 crore as up­front pay­ment this year, which started on April 1, or 25-33% of the to­tal pro­ceeds, as per cur­rent rules.

But while stick­ing to its re­serve price of .₹ 11,485 crore a unit for pan-In­dia 700 MHz band­width, the reg­u­la­tor on Mon­day of­fered an eas­ier pay­ment struc­ture — 10% up­front and the rest spread over 18 years equally, in­clud­ing in­ter­est — to re­duce the fi­nan­cial bur­den of car­ri­ers and en­cour­age bid­ding. This pro­posal, still to be ac­cepted by the tele­com de­part­ment, how­ever, didn’t en­thuse in­dus­try and an­a­lysts.

“It’s un­likely the govern­ment will achieve the bud­geted amounts from auc­tion pro­ceeds, given the pric­ing of 700 MHz air­waves and the fact that this isn’t a do-or-die sit­u­a­tion for tel­cos, un­like pre­vi­ous auc­tions,” said Prashant Sing­hal, global telecom­mu­ni­ca­tions leader at con­sul­tancy firm E&Y In­dia.

He added that the eas­ing of spec­trum pay­ment terms sug­gested by the Tele­com Reg­u­la­tory Au­thor­ity of In­dia (Trai) won’t boost telco ap­petite for the 700 MHz band since there is no

More than a third of the 2,142 MHz spec­trum on of­fer fall in But base price for the 700 MHz band is con­sid­ered too ex­pen­sive by in­dus­try and an­a­lysts

busi­ness case at the pro­posed price of 5 MHz pan-In­dia block at .₹ 57,425 crore, more than half of the en­tire pro­ceeds of the last auc­tion. “A telco buy­ing such spec­trum would need to raise data ser­vice charges by at least 30-40% to make any money, but that won’t hap­pen since it would lead to a sharp re­duc­tion in us­age since data pric­ing, un­like voice, re­mains (price) elas­tic in In­dia,” Sing­hal said.

Also, a po­ten­tial buyer of a pan-In­dia 5 MHz block of 700 MHz spec­trum would be forced to an­nu­ally fork out nearly .₹ 8,000 crore by way of in­ter­est and amor­ti­sa­tion charges over a19-year span, he added.

Ra­jan Mathews, di­rec­tor gen­eral of GSM in­dus­try body Cel­lu­lar Op­er­a­tors As­so­ci­a­tion of In­dia (COAI), called the sug­gested pric­ing of 700 MHz air­waves “pro­hib­i­tive”. COAI rep­re­sents telco big­gies Bharti, Voda­fone, Idea and 4G new­comer Re­liance Jio, among oth­ers.

“Bid­ders opt­ing for a longer pay­ment ten­ure, would have to po­ten­tially spread out their ser­vice tax li­a­bil­ity over a 19-year span as well, which would un­doubt­edly in­crease the real cost of spec­trum ac­qui­si­tion,” Mathews said.

Suc­cess of the next auc­tions de­pends hugely on the 700 MHz band, since it ac­counts for more than a third of the 2,142 MHz spec­trum pro­posed by Trai to be sold, and nearly three-fourths of the 5.4 lakh crore that the govern­ment could gen­er­ate if all spec­trum on of­fer is sold at base price.

“Gone are the days of .₹ 80,000-90,000 crore to­tal col­lec­tions,” a top ex­ec­u­tive of a lead­ing telco told ET, in­di­cat­ing govern­ment col­lec­tions will be far less than in pre­vi­ous years.

The March 2015 auc­tion fetched the govern­ment a record .₹ 110,000 crore from the sale of 418 MHz of air­waves across four fre­quency bands. And back in Fe­bru­ary 2014, the Cen­tre raised over .₹ 61,000 crore by auc­tion­ing 431 MHz, mostly in the lu­cra­tive 900 MHz band.

But in both, some of the top tel­cos faced must-win sit­u­a­tions as their per­mits were com­ing up for re­newal, thus re­sult­ing in ag­gres­sive bid­ding to pro­tect their in­vest­ments.

But this time around, no ma­jor car­rier faces busi­ness con­ti­nu­ity is­sues. In fact, Bharti Air­tel and Re­liance Jio In­fo­comm have got ad­e­quate data spec­trum and a pan-In­dia 4G spec­trum foot­print, which lim­its their need to bid.

Voda­fone In­dia and Idea Cel­lu­lar are the only two among ma­jor play­ers who need to beef up data air­wave hold­ings, with 4G band­width in five and 10 cir­cles, re­spec­tively.

But given the com­fort­able sit­u­a­tion of its main ri­vals and the am­ple quan­tity and spread of band­width to be put up, bid­ding is likely to be ra­tio­nal, say an­a­lysts. Trai has sug­gested that the govern­ment in July auc­tion a record 2,142 MHz of spec­trum across the 4G bands of 700 MHz, 800 MHz, 1800 MHz, 2300 MHz and 2500 MHz bands, and 3G air­waves in the 2,100 MHz band.

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