India cleared on Wednesday a mega telecom spectrum auction plan that can fetch the government an estimated Rs 5.6 lakh crore, but industry leaders cautioned that high prices could eventually force companies to raise tariffs.
The move will make more spectrum — radio waves that carry telecom content — available for operators to offer high-speed data, help reduce call drops, bolster the government’s fiscal position, but could hurt companies’ fragile balance sheets by forcing them to borrow more.
“This will be the largest auction to date,” finance minister Arun Jaitley said during a press briefing after the cabinet headed by Prime Minister Narendra Modi approved the spectrum auction proposal.
The government was confident that the prices will not be a hurdle for the auctions to sail through.
“The appetite for India’s telecom sector is very big,” communications and IT minister Ravi Shankar Prasad said.
More than 2,300MHz of airwaves will be on the block for telecom operators in seven bands — 700MHz, 800MHz, 900MHz, 1,800MHz, 2,100MHz, 2,300MHz and 2,500MHz. Based on their pan-India reserve price, the revenues can be as much as Rs5.6 lakh crore.
A decision on the so-called spectrum usage charge (SUC), a fee that telecom firms have to pay the government every year, has been deferred with the cabinet referring it back to the sector watchdog.
Industry leaders said the minimum bid prices, approved by an inter-ministerial panel, are still on the higher side and could have a bearing on consumers’ telecom bills.
“There is the issue of affordability,” said Rajan Mathews, director general of the Cellular Operators Association of India (COAI).
“If you consistently increase your input prices (spectrum costs), it will put pressure on tariffs,” he said.
The reserve price of the most premium 700Mhz band has been fixed at Rs 11,485 crore per Mhz. A 5MHz pan-India block in this band will cost a minimum of Rs 57,425 crore.
“It shall take approximately 60-75 days for the government to conduct the auction once the cabinet gives its official nod. Hence, the auction would be conducted around end of September,” Mathews said.
Officials said it will allow telecom operators to purchase spectrum at par with international holding values and end the spectrum shortage, and help Digital India, an ambitious government plan that aims to move everything online, from education to public services to bureaucracy.
The total potential revenue of Rs 5.6 lakh crore from the spectrum sale is more than double of the telecom services industry’s gross revenue of Rs 2.54 lakh crore.
India’s telecom operators are saddled with a combined loan of Rs 3.8 lakh crore.
Mathews said most companies will struggle to finance the latest round of spectrum auctions. “This will definitely be a challenge.”
He said most companies will likely use the option of staggering the payments over a 10-year period to nurse their books.
This 2016-17 fiscal, the government has budgeted to earn nearly Rs 100,000 crore from telecom spectrum auction and other charges such as licence fees.