2G verdict: telecom tariffs may rise

However,for mobile phone customers,portability is a possible way out.

Written by ENS Economic Bureau | New Delhi | Published:February 3, 2012 1:20 am

Mobile service providers are looking for higher charges and easier number portability rules after the Supreme Court cancelled 122 telecom licences leading to potentially 6 crore new customers for larger companies.

High debt costs and stagnant revenues per user,brought on by fierce competition for spectrum and customers,have left most service providers with losses and hungry for more turnover. In July,Bharti Airtel raised tariffs by 20 per cent and was quickly followed by Vodafone and Idea Cellular. Last month,Sunil Mittal,Airtel’s chief,said operators would charge higher tariffs if faced with higher spectrum fees from the government.

Companies whose licences have been cancelled form around 5 per cent of the total subscriber base,according to data from the telecom regulator. The majority are subscribers of Uninor or Etisalat-DB. However,customers of the affected firms may have the option of switching operators more easily. Some larger incumbents are asking the Telecom Regulatory Authority of India (Trai) to ease mobile number portability with an eye on the user base of service providers who must hand back their licences,an official at the industry regulator said.

Current rules allow customers to switch networks for Rs 19. Service providers must also agree a dipping charge between themselves. JS Sarma,chairman of Trai,told reporters that the regulator would ask service providers to inform their customers on how to retain their phone numbers while switching operators.

“ Subscribers have option to port out through MNP. We will instruct operators to inform their subscribers and come out with advertisement,” Sarma said.

Industry sources on Thursday felt that the Supreme Court’s judgment would help the telecom industry consolidate as it cancelled licences held by many smaller service providers,many of whom might struggle to win spectrum in the new auction.

This would raise the likelihood that prices increase since many smaller service providers charged sharply lower than their larger rivals to increase their subscriber base,a company official said. “ If all these players do not agree to increase the price together,the price hike fails. A lot of the new players had aggressive pricing strategies,” the official said. Kunal Bajaj,a consultant at Analysys Mason,agreed that the exit of some operators would lead to consolidation in the industry soon. The re-auction of the spectrum surrendered,which the government must hold within four months,would also mean firms pay more for their airwaves. In a less competitive environment,the users would pay more.


Scenarios Facing Players
If the operations of players involved gets seized after four months
Impact on customers:

The customers have option to migrate to service providers who are not involved in the scam by using the number portability option. However customers who have joined one of these operators within the last 90 days might have to wait.

Impact on banks:

Several PSU banks believed to have debt exposure to the companies involved. In case their businesses are seized,the government will have to refund the license fee paid and that will go to the banks. Banks can also take over the company’s infrastructure assets such as towers,equipments.

Impact on the Sector:

There are several companies who have made investments to build the ecosystem around these players. There are equipment suppliers who may have given credit to these companies,tower companies who rolled out tower network where these companies are tenants and these companies too would be having debt on them. In this scenario these companies will also get impacted.

Impact on Tariff:

With a fall in the number of operators and a resulting fall in competition,the tariffs are likely to go up and the customers will have to shell out more.

What if the companies are allowed to pay additional fee for spectrum and allowed to run their business:
Impact on companies:

There will be additional financial burden on the companies named in the 2G scam. While they are already running in losses,an additional debt burden will further dent their balance sheet.

Impact on Tariff:

With rising financial burden,the companies will be forced to hike the tariffs as they are already making losses. Their ability to absorb losses will go down.

By Sandeep Singh


2G Exposure: Banks brace for impact

State Bank Of India: The largest bank in the country has a fund-based exposure of Rs 1,100 crore in five accounts,while another Rs 3,400 crore are non-fund based,which is based on a guarantee of roll-out. Now that the licences are cancelled that guarantee is not fulfilled,SBI says. For Rs 1,100 crore,all the accounts are from corporate houses with whom the bank has long-term relationships. The corporate house behind the licencee will help us or we also expect them to bid again at the time of the new auctions,which can secure our funds,it says.

Punjab National Bank: Exposure for rollout under 2G is limited to Rs 508 crore. However,the bank had not given any loan for seeking licence. PNB has total exposure of Rs 10,923 crore towards telecom sector. Of this,the bank’s exposure to government sector is Rs 1,016 crore,the bank said in a statement. It also said Rs 173 crore is fully secured by bank’s deposits.

ICICI Bank: Unaffected from the cancellation of 2G licences. ICICI Bank does not have any exposure at risk on account of cancellation of 2G licenses,the bank spokesperson says.

Corporation Bank: Exposure of Rs 146 crore in Videocon Mobile. Though it is a secured funding,the bank is a bit worried as to how it will pan out post the Supreme Court verdict. The bank will review the account in the light of this development though this has been a standard asset so far.

Indian Overseas Bank: Chairman and Managing Director M Narendra says the bank does not have exposure in 2G telecom companies. The bank has got an exposure of 1.21 per cent of total loans in telecom sector including telecom infrastructure,Narendra said. The bank has sanctioned Rs 2,200 crore to the telecom sector.

OBC: Oriental Bank of Commerce has disbursed loans to telecos whose licences have been cancelled.

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