Auction of spectrum: Will the Indian telcos bite the bullet?

The Indian government hopes to make $85 billion, more than one fourth of country's budget for 2016-17.

As the government plans to go ahead with the auction of spectrum in seven bands in the next couple of months, including the much sought-after 700MHz, doubts are being expressed over its success as major telecom service providers are not in a position to take part due to the huge financial commitments involved.

The government has decided to conduct the next round of spectrum auction either in May or June for 700/800/900/1800/2100/2300/2500MHz bands, and the Telecom Regulatory Authority of India (TRAI) submitted its recommendations in January on the valuation and reserve price of these seven bands.

If these recommendations are considered, the government would get Rs5.36 lakh crore (over $85 billion) from the auctions -- more than 25 percent of the country's national budget of 19.68 lakh crore rupees for the financial year 2016-17, which was presented to Parliament on February 29. It is also more than double the combined revenues generated (around $38 billion) by all telecom companies during the financial year 2014-15.

According to estimates, of the projected revenues by way of auction, the sale of 700MHz spectrum alone would fetch around $64 billion. Governments can be ambitious but not greedy.

While there is no denying that the telcos are dying of spectrum shortage, it is the price factor that is prohibiting them from jumping around as many of them are not financially sound to participate in the ensuing auction, and they have already made this clear to the government.

Indian Minister for Communication and Information Technology Ravi Shankar Prasad informed Parliament last week that the government has not taken any decision on the recommendations of TRAI, and the "stakeholders" (telcos), in their comments to the regulator's consultation paper, have requested that the auction of the spectrum in the 700MHz band be held only after development of a strong device ecosystem.

The companies are of the view that it would not be possible for them to fully utilise the spectrum purchased as the infrastructure was not fully laid out for the same. Reportedly facing a debt of $36 billion, these companies have also requested that the auction should be put off for at least two years as many of them were not in the pink of their health as far as revenues are concerned.

The minister also said that a few stakeholders have submitted that the existing spectrum allotted to them was still in the process of being fully utilised as they were planning rollouts and new schemes. "Therefore, as per these stakeholders, auction of spectrum in 700MHz would clearly divert CAPEX from its already planned rollouts," he added.

Interestingly, the Cellular Operators Association of India (COAI) has requested for auction of sufficient spectrum in 2100MHz, harmonisation and auction of 1800MHz band, as well as auction of 2300MHz and 2500MHz, with spectrum becoming available due to expiry of licences up to September/October 2017, the minister added.

Speaking to ZDNet, COAI Secretary General Rajan S Mathews said the government can expect these companies to take part in the auction provided some concessions are announced much before doing business.

The concessions include extending the validity of licences given to the companies by another 10 years from the existing 20; no collection of licence fee and spectrum usage charges among others for first five years; and reducing the prices for purchasing spectrum.

"Conceding our wish list is a big challenge for the government as the reserve price recommended by TRAI for 700MHz is very high and not within the reach of operators," he said, adding that the government can accommodate their demands if it wants to make a huge sum out of the spectrum auction.

Citing an example, Mathews pointed out that if Bharti Airtel wants to buy 10MHz in the 700MHz band, it has to shell out twice the amount of its annual revenues. "No company will invest in such high costs in the absence of a thriving ecosystem," he averred.

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