)
The spectrum that was offered in a failed auction in March 2013 will be put out for rebids in January 2014 with a 25 per cent discount to the March reserve price. The base price for one Mhz of the 1800 Mhz band in January will be set at Rs 1,765 crore versus the Rs 2,379 crore base price that was set in March. The Telecom Regulatory Authority had suggested a base price of Rs 1,496 crore so, this is a substantial premium to the TRAI-recommended price while being a large discount to the March prices. Kapil Sibal estimated that the government hoped to raise between Rs 30,000 crore and Rs 40,000 crore from the auctions.
The Telecom Commission has, therefore, compromised somewhere in between and the Empowered Group of Ministers accepted the Commission's recommendations. In the 900 Mhz band, which is to be auctioned only in Delhi, Mumbai and Kolkata, the Telecom Commission's recommendation of Rs 360 crore/ Mhz in Delhi, Rs 328 crore in Mumbai and Rs 125 crore in Kolkata was accepted. This is about 25 per cent higher than the suggested TRAI base prices for 900 Mhz. The base rate for 800 Mhz has not been set but the EGoM has asked Trai to set a price.
The operators still seemed to feel that the base prices for 1,800 Mhz were too high so there could be some reluctance to bid higher on the 1800 band. Other issues could arise around 800 Mhz and 900 Mhz. First, while 800 Mhz is generally used for CDMA services, 900 Mhz is very similar and it is entirely possible to provide similar services on either.
Assuming technology-neutrality, an operator who is interested in 800 Mhz will also be hoping for price discovery in 900 Mhz. There is no reserve price for 800 Mhz at the moment and there is no reserve price for 900 Mhz in 18 circles. In most circles, 900 Mhz is held by players who could be asked to give it up for re-farming. So, bidding may soon be required and legal challenges could arise around re-farming.
These complications could mean that the spectrum auctions are a damp squib once again. If that happens, there will be a long delay before the political situation stabilises enough to see a rebidding. In all probability, the next government would have to take on the situation.
Another problem is the multiple agencies involved in making policy. There is the Telecom Regulatory Authority of India (Trai), there is the Department of Telecom (DoT), there is the Telecom Commission, there is a Telecom Minister and there is an EGoM. With that many authorities to consult, policy decisions take longer, especially since some of the agencies are always at loggerheads with others.
The situation with regard to FDI could ease with 100 per cent FDI being cleared. This means that financially strapped operators can hope to be bought out. The situation with respect to mergers could also be eased to some extent, given a proposal where a merged entity can hold larger market share of 50 per cent (instead of the earlier 35 per cent) in terms of joint subscriber base in a given circle. But these policy decisions have been cleared by the EGoM yet and consolidation cannot occur until clarity is there on the M&A front.
Meanwhile operators have seen some uptake of faster 3G connections after they cut prices for those services. But they bid too high on 3G spectrum and they haven't recovered combined spectrum and network rollout costs. The mess with the 2G licenses, the cancellation by the Supreme Court and the subsequent rebids may also force them to fork out more. There have been very few 4G rollouts. There is still a fair amount of litigation in progress.
This mess is largely the creation of the government with its endless flip-flops over policy details. Telecom is also politically sensitive to a great degree. Apart from obvious issues of corruption, there is the fact that telecom services are vitally important to hundreds of millions of voters. If services are cut for some regulation-related reason, or costs rise due to perceived mismanagement, voters will squarely place the blame on government.
Between the devil and deep blue sea, the sensible thing to do would be cut base rates to ensure that bidding is strong, money is raised for the exchequer and that services are competitive, and reasonably priced. Also, the M&A norms have to be cleared as soon as possible. There are no guarantees that this government will do the sensible thing going by its track record.
Will telecom stocks be worth buying or shorting in 2014? The January auctions could help define answers to this question.
