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Proposals will lead to rise of 4-6 paise a minute in cost for firms in FY13: Trai

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The Telecom Regulatory Authority of India (Trai), which carried out an impact analysis based on 12 different scenarios of revenue growth and payment schedules for the industry, has concluded the increase in costs of the operators, as a result of the base price recommended by it, would range between four paise and six paise per minute in the first year—2012-13—of the 20-year period. In the last year of the licence (2031-32), it would range between one paisa and three paise per minute.

The analysis was carried out after accused the regulator of recommending a base price of Rs 3,622 crore for every megahertz (MHz) of the 1,800 MHz band, which would be 10 times what operators paid for acquiring licences (bundled with 4.4Mhz) in 2008 at Rs 1,658 crore. The GSM operators said the increase in rates would be over 30 paise per minute.

The detailed analysis, which has not been made public in the report, has also formed the basis of the regulator sticking to its earlier stand on the base price, in response to clarifications sought by the Department of Telecommunications.

HIGHLIGHTS OF TRAI ANALYSIS
* Impact on rates in the range of 4-6 paise per minute in the first year (2012-13), based on Trai’s analysis of 12 scenarios 
* Impact on rates in the range of 1-3 paise per minute in the last year (2031-32)
* GSM operators claim a rise of 30 paise per minute on tariff, following Trai proposals on auction of spectrum
* Trai recommended base price of Rs 3,622 crore for every MHz of spectrum in 1,800 Mhz band
* Trai’s proposals have met with severe criticism from the industry 
* Foreign players such as Telenor and Sistema threatened to quit if Trai’s proposals are accepted
* Supreme Court directed the govt to conduct auction by August 31, following the court’s order of cancellation of 122 licences issued in Jan 08

Trai has taken into account various factors, under different scenarios of revenue growth, of the likely impact of the reserve price on profitability. It also took into account the proposed auction of spectrum, costs of excess spectrum held by operators and costs required to be incurred at the time of renewal of existing licences/renewal of spectrum, as well as the likely savings, owing to the reduction in spectrum usage charges.

Taking into account the projected 10 per cent growth in minutes for the first year and spectrum usage charges of one per cent, Trai has calculated the total net impact per minute, including 15 per cent return on capital investment, at four paise per minute in 2012-13, and two paise/minute in 2031-32. Trai assumed revenues of Rs 1,06,975 crore for the industry and earnings before interest, tax, depreciation and amortisation (Ebitda) of Rs 10,244 crore for the first year.

In an optimistic scenario, considering projected growth of 15 per cent in minutes, revenues at Rs 1,10,865 crore for the industry and Ebitda at Rs 13,554 crore, the net impact comes to four paise for the first year and two paisa in the last. In this case, spectrum usage charges were kept at one per cent. On three per cent spectrum charges, the impact on cost is virtually the same, except in the last year, when it stood at two paise per minute.

Even in a pessimistic situation, Trai said the net impact on rates would be about six paise per minute in the first year, and one paisa in the last. Here, too, the projected growth in minutes was kept at 10 per cent, with revenues of Rs 1,01,126 crore and Ebitda of Rs 5,271 crore for the first year, while the spectrum usage charges were kept at one per cent. Trai also took into account spectrum usage charges of three per cent. The impact in the first year was then the same, but in the last, it stood at two paise per minute.

The telecom regulator had recently written to the Department of Telecom-munications, asking it to reject the contentions raised by the chief executives of four telecom companies, including Bharti Airtel, and Idea Cellular, on its recommendations on the auction of telecom spectrum. The four operators had said the recommendations would lead to a 30 per cent increase in rates, and had objected to refarming, saying it was not in line with international best practices.

The entire telecom industry has been up in arms against Trai’s proposals, which recommended a steep reserve price of Rs 3,622 crore for every megahertz of the 1,800 MHz band. Foreign player such as Telenor and Sistema said they would be forced to exit India, if the regulator’s proposals were accepted.

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