Consolidation begins

Road map for telecom spectrum auctions needed to spur investments

Videocon Telecommunications' sale of its spectrum in the Gujarat and Uttar Pradesh (West) circles to Idea Cellular for Rs 3,310 crore could well be the beginning of the much-needed consolidation in the telecom sector. Videocon has said it would sell spectrum in four other telecom circles too: Madhya Pradesh, Haryana, Uttar Pradesh (East) and Bihar. Earlier in the month, Reliance Communications had announced that it would acquire the Indian venture of Russia's Sistema in a deal valued at Rs 4,500 crore in stock and payment to the government (for spectrum). Tata Teleservices, it has been reported, is in talks with Telenor for a merger.

The Indian telecom market is among the most competitive in the world with almost a dozen service operators, because of which tariffs here are among the lowest in the world. As a result, average revenue per user in India, at about Rs 130 per month, is lower than even in Africa, though Indians are among the heaviest users of the mobile phone anywhere in the world. The intense competition, aided in no small measure by the government's inability to release adequate spectrum available with it for auctions, has also made spectrum in India perhaps the costliest in the world. The combination of low yields and high spectrum charges has constrained the ability of the service operators to make investments. The licence fees and spectrum user charge, which add up to 13 per cent of adjusted gross revenue, only make it worse. Consolidation could result in better tariffs. This will give the service operators the space to make more investments, which will improve the quality of service. A robust telecom network is critical for the success of programmes like Digital India and for financial inclusion.

The Idea-Videocon deal is the first after the government cleared the way for spectrum trading. In this particular case, since Videocon had bought the spectrum in an auction in 2012, the deal went through smoothly. However, some operators have spectrum that was allotted to them at a low price. In such cases, spectrum can be sold only after the operator has paid the difference between the allotted price and the auction price to the government. Also, Videocon had bought the spectrum in the two circles for Rs 1,329 crore in 2012. The sale price of Rs 3,310 crore is almost two and a half times that. This windfall for Videocon can be explained by the fact that the Gujarat and Uttar Pradesh (West) circles are important for Idea, which plans to use this spectrum to launch 4G services.

It also shows that the government does not have a clear road map for spectrum auctions, especially in the 1800 MHz band which is crucial to host 4G services. The premium paid by Idea shows that the company does not expect enough spectrum in the band to be auctioned soon. Spectrum trading is a good thing, but it is for the government to ensure that there is no threat or scarcity looming over the market.