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EXCLUSIVE: New spectrum rules to hit telcos

Move to reframe entire spectrum on licence renewal will cost them a staggering Rs 1,15,000 cr

Surajeet Das Gupta & Sounak Mitra  |  New Delhi 

In a major setback to incumbent operators, Bharti Airtel, Vodafone, Idea Cellular and state owned Bharat Sanchar Nigam Ltd and MTNL, the Telecom Commission today decided that all spectrum which have been given to operators in the 900 Mhz band will be refarmed to the 1800 Mhz band at the time of the renewal of their licences which begins from 2014 to  2016.

The move, if accepted by the empowered group of minister (EGoM) on telecom which is meeting tomorrow will mean that they together have to fork out a staggering over Rs 1,15,000 crore in order to migrate their 900 Mhz network and its subscribers to the 1800 Mhz band according to an analysis undertaken by Analysys Mason on behalf of the Cellular Operators Association Of India (COAI).

The move will also have an adverse impact of consumer who might have to fork out an additional over 60 paisa per minute which make mobile calls pretty expensive.

Airtel, Vodafone, Idea, BSNL and MTNL to take Rs 115,000 cr hit due to refarming. Will impact bottomlines adversely
EBITDA margins of top three operators on 900 Mhz to fall from 29.5% to 21.4% due to addl investments, costs
Consumers might have to pay an average additional 64 paisa per minute
GSM operators with 900MHz band to replace 286,590 base stations, install addl 171,954 base stations for equivalent coverage on 1800MHz, as 1800 MHz is less efficient
Replacement of base stations, addl site deployment to result in incremental capex of  Rs 54,739 crore, incremental annual operating expenditure of Rs 11,762 crore
Operators to write-off  Rs 22,310 crore due to 900 Mhz assets. Will require additional investment of Rs 26,653 cr to expand their tower base

Geographic coverage to fall by 40%

 
Speaking to journalists after the meeting DoT secretary R Chandrashekhar said: “We have recommended that full refarming of the entire 900 MHz band of spectrum should be adopted. We will refer this to the Empowered Group of Ministers (EGoM). The issue would be discussed at the EGoM meeting tomorrow. The EGoM will take the final decision on this,”.


GSM operators are already up in arms. Says a worried Rajan Matthews, director general of COAI : “If the final decision remains the same we will have no option but to challenge it in TDSAT. After all we will have no option to pass on the additional burden by substantially hiking the mobile tariffs and this will adversely impact everyone”.  

Matthew says that nowhere in the world has over 450 million customers been migrated from one spectrum band to another. This could lead to serious black out of services to consumers. “Shareholders and investors in these telcos will force them to take impairment charges on their books on their 900 MHz assets.  That will have a huge adverse impact on company’s bottomlines,”he added.  

Trai in 2010 had recommended refarming of the 900 MHz band as it had argued that globally it was being used for 3G services and was a valuable band which should not be used uneconomically to give 2G services.  The cabinet has already permitted refarming as part of the new telecom policy.      

The TC had discussed three alternative proposals in the meeting today, one which envisages retaining up to 5MHz of spectrum, the second retaining up to 2.5 Mhz and the third which has been accepted to refarm the entire spectrum that they have now.

Giving the pros and cons of the third alternative, TC in its note had said that this proposal has been recommended by Trai as well as by the DOT committee. It also gives an equal opportunity to all telcos to bid for the spectrum and both holders and non-holders get equally opportunity to bid which optimizes its price realization. However it acknowledged that it could impose a heavy burden on operators and adversely impact rural coverage and quality of service in urban areas.
      

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First Published: Wed, October 17 2012. 14:39 IST
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