You are here: Home » Economy & Policy » News
Business Standard

Spectrum prices likely to soar in February auction

Union Cabinet had decided to auction spectrum in the 800-, 900- and 1,800-MHz bands at prices 2-23% more than what the Trai had recommended

Surajeet Das Gupta  |  New Delhi 

Telecom spectrum prices are expected to go through the roof, as was the case in 2010, when leading operators went into financial trouble after forking out Rs 67,000 crore for only three slots of 3G spectrum (five MHz each).

Operators say while at least four operators will participate in the auction, the number of slots (of five MHz in different bands) up for grabs will only be three to four in each circle. Rajan Matthews, secretary general of the Cellular Operators Association of India, says, "With four to six players expected to participate in the auction, the government's decision to raise prices and put only five MHz of 2,100-MHz spectrum up for bids, instead of 20 MHz, will lead to a huge increase in prices, which telcos cannot afford."

On Monday, the Union Cabinet had decided to auction spectrum in the 800-, 900- and 1,800-MHz bands at prices 2-23 per cent more than what the Telecom Regulatory Authority of India (Trai) had recommended. Communications minister Ravi Shankar Prasad said only five MHZ of 2,100-MHz spectrum would be auctioned simultaneously in the auction in February; the additional 15 MHz of spectrum in the same band would be up for grabs later.

This issue might be debated again when the Cabinet takes up pricing of the 2,100-MHz spectrum.

As in 2010, it is likely telecom operators will face a shortage of spectrum again. In 18 circles where 900-MHz spectrum will be auctioned, there are slots for only two operators (the minimum slot required for using spectrum for data is five MHz). In all these circles, two players are already present, including Bharti, Vodafone, Idea and Reliance Communications, who are returning spectrum to the government, as their licences expire this year. These companies will, of course, fight to retain their spectrum.

Telecom companies say they expect at least one-two players to enter the bidding process for 900-MHz spectrum, possibly companies such as Idea or Reliance Communications, which do not have 900-MHz spectrum in many circles. Newer operators such as such as Reliance Jio or Uninor could also join the party.

The concern would have been addressed had there been enough spectrum available in the 1,800-MHz band, as incumbents could have bought this in case they weren't able to retain their spectrum in the 900-MHz band.

But unfortunately, in many key circles, there isn't even one slot (five MHz) of 1,800-MHz spectrum available. In fact, about 60 per cent of the 104 MHz of spectrum in this band is available in circles that aren't very lucrative in terms of business, with the exception of Tamil Nadu. Also, about 14 MHz are that of operators who are returning the spectrum to the government, following the end of 20-year licence period; these operators will fight to retain their spectrum.

That is why the 2,100-MHz band is crucial. Because of the high price of 3G spectrum during the 2010 auction, no operator in India was able to win pan-India 3G spectrum. Worse, they got only five MHz of spectrum in each circle (the global norm for 3G services is 10 MHz). It will take at least three to four slots of 2,100-MHz spectrum to ensure all 3G operators, including Bharti, Vodafone, Idea, Aircel, Reliance Communications and Tata Teleservices, offer pan-India services on their own.

Many operators such as Uninor might also consider offering data services and join the bidding process. As such, telecom companies say it is possible three to five players will fight it out for just one slot of 3G spectrum which, as in 2010, will lead to high prices. Had three slots (15 MHz) being auctioned, the story would have been different.

For the government, it will mean much more money than it had anticipated - about Rs 64,000 crore. And, this will rise by another Rs 15,000 crore (for a slot in the 2,100-MHz band). It is felt spectrum should be sold at higher prices and, therefore, all spectrum should not be auctioned at a go.

But telecom companies could be staring at a crisis once again. Consider this: these companies have already spent about Rs 1,80,000 crore on spectrum since 2010, when the first auction was held. Add to that the fact that they have to fork out at least Rs 79,000 crore in February this year. Assuming interest cost of 10 per cent, together, telcos have to spend about Rs 26,000 crore every year (excluding the principal). The earnings before interest, tax, depreciation and amortisation of all these companies, many of whom are in the red, is Rs 52,000-55,000 crore a year, or double the amount they have to spend on interest on loans taken to buy spectrum. That clearly reflects how less the money to invest in their networks is.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Wed, January 07 2015. 00:50 IST