2G Spectrum auction: How it affects existing telecom operators

Telecom Lead India: The likely presence of aggressive
bidders (like Reliance Industries-owned Infotel) is set to push up the price of
2G spectrum during the bidding.

Rs 14,000 crore is the base price and final spectrum
price can be significantly higher than the base price depending on the

We are sure that there will be aggressive bidding this
year as well. Since 4G spectrum is not happening soon and there is an urgent
need for additional spectrum for further expansion, there will be strong demand
for 2G,” said CEO of a leading mobile operator.

Thanks to aggressive initiatives by RIL, the price of
broadband wireless access spectrum went up from a base of Rs 1,750 crore to Rs
12,850 crore in 2010. This had forced wireless broadband aspirants such as
Reliance Communications, Tata Communications, etc. to get out the bidding.

Several mobile operators have already burnt their fingers
in 2010 by coughing up more than Rs 1,02,273 crore against the government
target of Rs 35,000 crore for 3G and BWA spectrum.

Careless 3G bidding has made operators debt ridden and
they are yet not to recover even small portion of their investments. 3G
spectrum was sold at Rs 16,750 crore against base price of Rs 3500 crore.

Though operators can make payment in installments, the
industry is concerned about the viability of the market in the current
conditions. Plus the high interest to banks will further deteriorate the health
of the telecom industry.

Due to tough market conditions, Reliance Communications
could not complete the listing of its arm in Singapore in July. Financial
institutions will be cagey to fund even if mobile operators are going to
mortgage spectrum. The industry is already feeling the heat due to

BSNL said the base price could be disadvantageous while
renewal process is undertaken.

Bharti Airtel said it was disappointed with the
government’s decision to fix the reserve price for 2G spectrum auction at Rs
14,000 crore, which will lead to higher tariffs for consumers.

The base price is unreasonably high and it will impact
the overall industry, which is already going through a rough patch. It will
undermine the agenda of affordable service and we will have no choice but to
pass on the burden,” Bharti Airtel CEO Sanjay Kapoor told Times of India.

Industry association Ficci has termed spectrum charges as
anti-consumer that could have serious repercussion for the telecom sector.

It will force the telecom companies to increase tariffs and substantially
increase entrance barriers for new entrants thus adversely impacting

Ficci is also critical of the government for not lowering annual fee on
spectrum usage charges, which vary from 3 to 8 per cent of revenue earned by
telecom operators. This will not only impact the overall health of the telecom
industry, which is already reeling under severe financial stress, but also goes
against the overall vision of the government to provide affordable telecom
services to the masses.

Idea Managing Director Himanshu Kapania said there is no
business case even if the reserve prices were set at Rs 1,650 crore (per Mhz).
Idea is losing Rs 170 crore per quarter in each of the seven circles where our
licences were quashed by the Supreme Court, Economic Times reported.

COAI Director General of the Cellular Operators
Association of India said te high reserve price can impact tariffs by 30 paise
a minute and additional debt of Rs 325,000 crore would have to be raised by
telecom players to fund bids. Banks do not have that kind of bandwidth, Business Standard reported.

FirstPost reported that the Union cabinet’s decision to set
the reserve price for 2G spectrum at Rs 14,000 crore is perhaps one of the best
decisions it has taken in a long, long time. It may have come at the wrong time
telecom companies have already started their breast-beating exercises when
the economy is trending down, but it is sound in principle. Scarce resources
should not be sold cheap.


Hope the telecom industry will be showing good results in
the coming quarters.

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