Mobile companies disappointed, say high price will lead to increase in tariffs

The Cabinet has decided to fix Rs 14,000 crore as the base price for the upcoming spectrum auction. It has also decided to continue with the existing slab system for collecting spectrum usage charges.

Operators currently pay between 3 per cent and 8 per cent of their annual revenues as spectrum usage charge, depending on the amount of spectrum held.

There was a proposal to move to a system of charging a flat fee of 5 per cent but the Department of Telecom was in favour of continuing with the slab rate.

Though the base price is Rs 4,000 crore lower than what was initially proposed by the Telecom Regulatory Authority of India (TRAI), telecom companies termed the Cabinet’s pricing formula disappointing.

No business case

“Despite making numerous requests to the Government to reduce the base price, it is disappointing to see that they haven’t. This is contrary to the stated objective of making services affordable. Operators will have no option but to pass on this burden to consumers,” said Sanjay Kapoor, CEO, Bharti Airtel.

A Mumbai-based operator said mobile companies were bleeding at the existing price of Rs 1,650 crore so there can be no business case at Rs 14,000 crore. “They are talking about a reduction of Rs 4,000 crore from the TRAI recommended price but we are seeing it as an increase of over Rs 12,000 crore from the existing fee,” an executive with a Mumbai operator said.

Analysts said this price would create a big dent on cash-flows and would impact long-term valuations. Prashant Singhal, Partner in a member firm of Ernst & Young Global, said: “Any additional burden on the operators would ultimately lead to the natural death of telcos in India and de-growth of the industry. These price recommendations will prove to be regressive for the sector’s growth.”

Operators also warned that mobile tariffs could go up if spectrum was bought at this price. “It is highly likely that the operators will increase the tariffs by more than 50 paise per minute on average,” said Hemant Joshi, Partner, Deloitte Haskins & Sells.

None of the operators, however, ruled out participating in the auction. Telenor, one of the foreign players that had earlier evinced interest in bidding for spectrum, said it would wait for the detailed guidelines. “Until we see the full auction rules in the information memorandum, we are unable to come to any new position with regards to the auctions,” said Glenn Mandelid, Director of Communications, Telenor.


Analysts said the policy is likely to create barriers for new entrants aiming to bid for start-up spectrum, hampering competition. They also said none of the players may bid for pan-India spectrum.

The Government is expected to invite bids by August 22. Before that, it has to finalise the auctioneer. The Supreme Court had fixed August 31 as the deadline to complete the auction but the DoT may seek an extension.

(This article was published on August 3, 2012)
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