Ernst & Young says impact on cost per minute will be more than six times the 4.4 paisa estimated by TRAI

Telecom Lead India: One more assessment on spectrum pricing
and its impact is out in the Indian telecom market.

Recently, PwC came out with its assessment. The PwC views
were very similar to the views shared by the Cellular Operators Association of
India (COAI).

On Monday, Ernst & Young and COAI said TRAI has
underestimated the impact on cost per minute by including both incoming and
outgoing minutes in its calculations instead of only outgoing minutes that are

TRAI’s assessment does not include the cost of license
extension in addition to the cost of spectrum to be auctioned.

Taking into account these two factors only,  EY-COAI
estimates that the impact on cost per minute will be more than six times the
4.4 paisa (FY’13) estimated by TRAI. If all other factors are taken into
account then there would be a significant increase on subscriber tariffs
varying across operators and circles. 

Our analysis suggests that there will be a significant
impact on operator costs and consumer tariffs. The substantial payout for
spectrum may compel the operators to raise further debt and strain their
already leveraged balance sheets. Moreover, the operators would need deferred
payment mechanism for spectrum charges to reduce debt financing requirement and
to direct the funds towards network rollout in the initial phase,” said
Prashant Singhal, partner in member firm of Ernst & Young. 

Ernst & Young said TRAI has linked the reserve price to
the 3G bid price and in doing so has implicitly assumed that the revenue or
cash flow profile resulting from using the auctioned spectrum will be similar
to that from using broadband networks. This is unlikely to happen in the short
to medium term. Moreover, TRAI has not included the cost of additional spectrum
and/ or network deployment to service the high voice and data growth assumed in
the calculations. 
Further, TRAI has assumed that MOU/ sub will grow 84 percent during the 20 year
period that is in contrast to the declining trend seen over the last 3-4 years.
Also, the assumption of non voice revenues contributing 50 percent by FY’21 to
the total revenues is aggressive, says the EY-COAI analysis. 

The Ernst and Young report has further deepened our
concerns on the impact which the high reserve price would have on consumer
affordability. The Centre should give utmost priority to relook at the spectrum
auction process so as to ensure that consumer affordability is not hampered and
that the industry is not pushed into an untimely retreat,” said Rajan S
Mathews, director general, COAI.

It is critical to understand that while the NTP 2012 aims
at objectives like 100 percent teledensity by 2020; these inconsistent
regulatory policies will prevent the sector from performing optimally to
achieve the targets. We would urge the Government again to consider the
implications with a balanced view and refer to the industry representations, so
as to come out with a process that would be fair to the consumers, the
industry, as well as the investor community,” Mathews added.

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