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
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.