Will spectrum auction be a targeted activity for telecoms in January?

Established Indian telecom operators such as Bharti Airtel, Idea Cellular and Vodafone India are expected to participate in the spectrum auction next year – but it will be a targeted auction activity, said Mohammad Chowdhury, leader – telecom, PwC.

Responding to the decision on spectrum pricing by the empowered Group of Ministers (EGoM) on telecom —  headed by Finance Minister P Chidambaram — that accepted the spectrum pricing recommendations of the Telecom Commission on the third round of spectrum auction – probably in January 2014, PwC official said the reserve price determined for 1800MHz and 900 MHz spectrum remains high.

Telecom industry body GSMA also earlier requested downward revision in the spectrum pricing, saying the reserve price of Rs 359.65 crore for the Delhi circle for the 900 MHz band is too high comparing with spectrum auction in several European nations.

The reserve price for the 1800 MHz band for a pan-India license will be Rs 1,765 crore.

Telecom Commission had recommended a reserve price of Rs 359.65 crore for Delhi, Rs 327.50 crore for Mumbai and Rs 125.27 crore for Kolkata for 900 MHz band.

Telecom minister Kapil Sibal said the auctions in January are expected to generate around Rs 30,000 to Rs 40,000 crore.

Interestingly, the government, which is going for an election in 2014, is trying to cash in on the growth potential of the Indian telecom sector.

India government is considering two main facts. First, major telecoms are showing around 10 percent year-on-year growth in revenue. Second, profitability of a telecom will depend on how the company manages its books and finances.

Since India is already the second largest telecom market based on subscriber base – behind China, there will be no issues to generate revenues. Plus, ARPU decline – which is still getting attention in India — is not a concern for the government. ARPU will not matter if telecoms such as Bharti Airtel are trying to create a “voice minute factory,”

However, there are short term casualties. The spectrum pricing is likely to impact the roll outs of mobile networks in India. This means, there will be fresh challenges to telecom vendors such as Huawei, ZTE, NSN, Ericsson, Cisco, Alcatel-Lucent, etc.

Earlier, COAI director general Rajan Mathews told TelecomLead.com that the 3G expansion had impacted due to telecom operators’ inability to spend huge funds on networks on account of huge 3G license fee paid in 2010.

Transparent and well planned merger and acquisition guidelines can still attract foreign telecoms such as America Mobil, which may look at Vodafone India for acquisition. Also, there will be more stability to existing foreign telecoms such as Telenor and Vodadone if there is a strong M&A policy in place.

Spectrum price

Chowdhury of PwC says Indian telecom sector’s profitability is remaining well below the expected margins for mobile operations in emerging markets.  This, coupled with uncertainty around CDMA spectrum pricing, M&A guidelines not yet finalized, and rupee instability, will condition auction interest.

A section of the telecom industry feels that the government expects to garner over Rs 11,300 crore from the upcoming auction. This is because established operators need to extend the use of spectrum which is coming up to the end of its twenty year validity, and so we will see targeted auction activity this time around. Spectrum is their lifeblood to continue operations.

Besides established telecoms, Videocon Telecom is gearing to participate in the spectrum auction.

Telecom Commission did not accept the suggestions of the Telecom Regulatory Authority of India (Trai) had recommended up to 60 percent cut in the auction reserve price for spectrum in the 900 MHz band in Delhi, Mumbai and Kolkata circles.

It had also suggested 37 percent cut in the reserve price for spectrum in the 1800 MHz band- spectrum that was freed from cancellation of 122 2G licences. Telecom Commission suggested 15 percent increase in reserve price.

Sistema Shyam Teleservices (MTS India) earlier demand clarity on the auction for the 800 MHz band. Yesterday, the EGoM did not finalize their demands. The EGoM has requested telecom regulator TRAI to recommend pricing for the 800 MHz band. This means that there will be further delay in CDMA spectrum auctions.

Baburajan K