The government is likely to reap a bonanza of Rs 63,694.60 crore from the spectrum auction scheduled to begin next month, but, operators, reeling under heavy debt, may eventually end up increasing tariffs.
Higher tariffs could also impact the government’s plan to push the Digital India scheme, which relies primarily on data-based services. “The need for capacity spectrum, in our view, is likely to drive prices up for spectrum in the upcoming auctions… Every time spectrum comes for auction, uncertainty increases for both investors and operators,” according to a report by HSBC Securities and Capital Markets.
Acquiring maximum spectrum — the radio frequencies necessary for mobile devices to send and receive voice and data — is critical for operators to provide good connectivity, higher voice quality and data communication.
If the government is successful in attracting high bids, as planned, it would surpass the Rs 45,761 crore that it expects to accrue from telecom services as estimated in Budget 2014-15. “In Indian auctions, high prices are a challenge, but it also deters many others with weaker balance sheets,” a Nomura analysts report has said.
An inter-ministerial consultation on finalisation of reserve price, spectrum usage charge and other related issue for spectrum has been completed last week.
With a proposed additional spectrum usage charge of 5%, which operators have traditionally passed on to consumers, the tariffs are likely to go up.
The government’s objective of the auction is to obtain a market-determined price of spectrum through a transparent process and avoid hoarding of spectrum, besides stimulating competition in the sector, promoting rollout of trespective services and maximising revenue proceeds from the auctions.
“For the government to realise its digital India vision, they should make adequate spectrum available at right prices for operators ,” said Vivek Sood, CEO, Uninor.
A draft Cabinet note on auction has suggested a minimum bid price of Rs 3,695 crore per megahertz (in the 900 MHz band), Rs 2,191 crore per megahertz (in the 1,800 MHz band) and Rs 3,646 crore (in 800 MHz band). A total of more than 387 MHz of spectrum is likely to be put on block on February 25.
Spectrum auction has been a cash cow for governments globally, including in India. “The government has a clear annual roadmap of revenue accrual from spectrum sale till 2032 and with minutes of usage from data services set to increase, the revenue will only grow,” said Jaideep Ghosh, partner, KPMG Advisory Services Pvt Ltd.