Bidding for more

Telecom spectrum auction will enrich the government and cost the industry dearly

Telecom spectrum auction will enrich the government and cost the industry dearly

The Union cabinet has set the stage for an auction of the telecom spectrum at a minimum price of Rs 14,000 for a package of 5 megahertz. It has also bundled with it a cascading spectrum usage charge. After the cabinet approval,it is now certain that the auction will go through this fiscal. Which means the government will be able to bridge its fiscal gap without having to bother overmuch about the oil subsidy. The budget had estimated a realisation of Rs 40,000 crore from this auction. At the telecom regulators estimated reserve price,the realisation would have been almost Rs 77,000 crore. Despite the provision of deferred payment by telecom companies and a possible interest moratorium,the actual amount could come close to this.

It is also certain that this will raise tariffs for the sector. It is now up to the telecom companies to decide whether they will bid at this price. The choice for those whose licences were revoked,like Sistema and Uninor,is to either shut shop or bid at the price set by the government. For others,the choice is trickier. Bidding for additional spectrum is essential for all the companies,given the serious scarcity relative to the number of subscribers and the value added services that operators expect to roll out. But since the price discovered in the auction will determine the price the established telecom companies will pay for the additional spectrum they hold,the bidding itself will be tricky.

Whichever way it goes,it will be expensive. The additional price the operators could pay for the excess spectrum is likely to be upward of Rs 250,000 crore. For an industry that is expected to earn a gross revenue of Rs 111,837 crore in 2012-13,this can be a huge debt overhang. The department of telecommunications and TRAI estimate these can be offset by a range of price increases between 5 and 20 paise per minute. This is where the industry would differ. The Cellular Operators Association of India has,as expected,slammed the reserve price saying it does not present a viable business case. The next few years will challenge the sector as it struggles to match a lower rise in demand with the need to make matching investments in value added data based services. As of now,the government is the winner. Whether the public also wins,time will tell.