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Milking spectrum

Questions over Budget's demand from telecom sector

Business Standard Editorial Comment  |  New Delhi 

The government has budgeted Rs 98,995 crore from "communication services" in the 2016-17 Budget. The entire amount will not come from the auction of spectrum. About Rs 22,000 crore is licence and spectrum fees levied by the Department of Telecommunications, or DoT, and Rs 21,000 crore would be arrears and deferred payments. So, the government has budgeted for around Rs 56,000 crore from spectrum auction. As companies are required to pay only 30 per cent of the money upfront, this would require the DoT to sell spectrum worth about Rs 1.90 lakh crore during the next round of auctions which it plans to hold in June or July. The Telecom Regulatory Authority of India, or Trai, has suggested a base price for spectrum in the 700 MHz band which can fetch the government up to Rs 5.36 lakh crore. What the government needs to sell in order to meet its revenue target is less than 40 per cent of this. In that sense, the government has been conservative in its budgeting.

However, telecom companies have been quick to react that in fact this is way beyond what they are capable of paying. They have argued that the combined debt of the industry is already Rs 3.50 lakh crore, and this will lead to more stress on their balance sheets. Their main ire seems to be over the base price of the 700 MHz band, which is being auctioned for the first time and is much sought after for data-heavy 4G-LTE services. The base price fixed by the Trai is Rs 11,485 crore per MHz. The industry feels the propagation qualities of this band are similar to those of 800 MHz band, and therefore the two should be priced similarly; in Trai's recommendations, 700 MHz is almost twice as expensive as 800 MHz. What has compounded the problem is that there is hardly any 800 MHz and 900 MHz spectrum available in the upcoming auction, so those who lose out on 700 MHz cannot buy adequate spectrum in these bands. There is spectrum available in 1800 MHz, but it is fragmented and needs to be harmonised before the auction. There is however abundant spectrum available in 2100 MHz. Successful auction of 700 MHz spectrum, therefore, is critical if the government wants to meet its revenue target. Bharti Airtel, the country's largest telecom operator, has already said that it will not bid for these airwaves because they are too expensive. Others too have spoken out against the price, though none has categorically stated that it will not participate in the auction.



The other issue that may have cast a doubt over the attainability of the telecom revenue numbers is the assumption that the government would collect arrears and deferred payments of Rs 21,000 crore next year. This includes the disputed one-time spectrum charge the DoT had claimed from operators in 2013 for using spectrum over 4.4 MHz. The one-time charge was approved by the Union Cabinet of the previous government to level the playing field between incumbents who had been allotted spectrum at low rates and newcomers who were required to buy spectrum through the auction. However, this was challenged by the incumbents in the courts where the matter is still pending. Relying on revenues from arrears that are stuck in court cases could prove risky for the government's telecom revenue plans.

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Milking spectrum

Questions over Budget's demand from telecom sector

Questions over Budget's demand from telecom sector The government has budgeted Rs 98,995 crore from "communication services" in the 2016-17 Budget. The entire amount will not come from the auction of spectrum. About Rs 22,000 crore is licence and spectrum fees levied by the Department of Telecommunications, or DoT, and Rs 21,000 crore would be arrears and deferred payments. So, the government has budgeted for around Rs 56,000 crore from spectrum auction. As companies are required to pay only 30 per cent of the money upfront, this would require the DoT to sell spectrum worth about Rs 1.90 lakh crore during the next round of auctions which it plans to hold in June or July. The Telecom Regulatory Authority of India, or Trai, has suggested a base price for spectrum in the 700 MHz band which can fetch the government up to Rs 5.36 lakh crore. What the government needs to sell in order to meet its revenue target is less than 40 per cent of this. In that sense, the government has been conservative in its budgeting.

However, telecom companies have been quick to react that in fact this is way beyond what they are capable of paying. They have argued that the combined debt of the industry is already Rs 3.50 lakh crore, and this will lead to more stress on their balance sheets. Their main ire seems to be over the base price of the 700 MHz band, which is being auctioned for the first time and is much sought after for data-heavy 4G-LTE services. The base price fixed by the Trai is Rs 11,485 crore per MHz. The industry feels the propagation qualities of this band are similar to those of 800 MHz band, and therefore the two should be priced similarly; in Trai's recommendations, 700 MHz is almost twice as expensive as 800 MHz. What has compounded the problem is that there is hardly any 800 MHz and 900 MHz spectrum available in the upcoming auction, so those who lose out on 700 MHz cannot buy adequate spectrum in these bands. There is spectrum available in 1800 MHz, but it is fragmented and needs to be harmonised before the auction. There is however abundant spectrum available in 2100 MHz. Successful auction of 700 MHz spectrum, therefore, is critical if the government wants to meet its revenue target. Bharti Airtel, the country's largest telecom operator, has already said that it will not bid for these airwaves because they are too expensive. Others too have spoken out against the price, though none has categorically stated that it will not participate in the auction.

The other issue that may have cast a doubt over the attainability of the telecom revenue numbers is the assumption that the government would collect arrears and deferred payments of Rs 21,000 crore next year. This includes the disputed one-time spectrum charge the DoT had claimed from operators in 2013 for using spectrum over 4.4 MHz. The one-time charge was approved by the Union Cabinet of the previous government to level the playing field between incumbents who had been allotted spectrum at low rates and newcomers who were required to buy spectrum through the auction. However, this was challenged by the incumbents in the courts where the matter is still pending. Relying on revenues from arrears that are stuck in court cases could prove risky for the government's telecom revenue plans.
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Business Standard
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Milking spectrum

Questions over Budget's demand from telecom sector

The government has budgeted Rs 98,995 crore from "communication services" in the 2016-17 Budget. The entire amount will not come from the auction of spectrum. About Rs 22,000 crore is licence and spectrum fees levied by the Department of Telecommunications, or DoT, and Rs 21,000 crore would be arrears and deferred payments. So, the government has budgeted for around Rs 56,000 crore from spectrum auction. As companies are required to pay only 30 per cent of the money upfront, this would require the DoT to sell spectrum worth about Rs 1.90 lakh crore during the next round of auctions which it plans to hold in June or July. The Telecom Regulatory Authority of India, or Trai, has suggested a base price for spectrum in the 700 MHz band which can fetch the government up to Rs 5.36 lakh crore. What the government needs to sell in order to meet its revenue target is less than 40 per cent of this. In that sense, the government has been conservative in its budgeting.

However, telecom companies have been quick to react that in fact this is way beyond what they are capable of paying. They have argued that the combined debt of the industry is already Rs 3.50 lakh crore, and this will lead to more stress on their balance sheets. Their main ire seems to be over the base price of the 700 MHz band, which is being auctioned for the first time and is much sought after for data-heavy 4G-LTE services. The base price fixed by the Trai is Rs 11,485 crore per MHz. The industry feels the propagation qualities of this band are similar to those of 800 MHz band, and therefore the two should be priced similarly; in Trai's recommendations, 700 MHz is almost twice as expensive as 800 MHz. What has compounded the problem is that there is hardly any 800 MHz and 900 MHz spectrum available in the upcoming auction, so those who lose out on 700 MHz cannot buy adequate spectrum in these bands. There is spectrum available in 1800 MHz, but it is fragmented and needs to be harmonised before the auction. There is however abundant spectrum available in 2100 MHz. Successful auction of 700 MHz spectrum, therefore, is critical if the government wants to meet its revenue target. Bharti Airtel, the country's largest telecom operator, has already said that it will not bid for these airwaves because they are too expensive. Others too have spoken out against the price, though none has categorically stated that it will not participate in the auction.

The other issue that may have cast a doubt over the attainability of the telecom revenue numbers is the assumption that the government would collect arrears and deferred payments of Rs 21,000 crore next year. This includes the disputed one-time spectrum charge the DoT had claimed from operators in 2013 for using spectrum over 4.4 MHz. The one-time charge was approved by the Union Cabinet of the previous government to level the playing field between incumbents who had been allotted spectrum at low rates and newcomers who were required to buy spectrum through the auction. However, this was challenged by the incumbents in the courts where the matter is still pending. Relying on revenues from arrears that are stuck in court cases could prove risky for the government's telecom revenue plans.

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Business Standard
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