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New TRAI regime puts firms under pressure

TheTRAI latest recommendations have given fresh hope for the potential entrants in Indian telecom space -- and that means pressure on the incumbents, reports Arun Kumar.

business Updated: Sep 02, 2007 23:01 IST
Arun Kumar

The Telecom Regulatory Authority of India’s (TRAI) latest recommendations have given fresh hope for the potential entrants in Indian telecom space -- and that means pressure on the incumbents.

The existing players, particularly the large ones such as Bharti Aitel and Vodafone Essar, are expected to feel the heat as their capital expenditure would have to be increased substantially for a more efficient use of the spectrum in their hands. Besides, they would have to pay addition charges for spectrum as they have crossed the threshold spectrum usage limit of 8 megahertz (MHz).

“The new spectrum pricing norms point towards increased financial outgo for telecom companies on both capital and operational expenditure,” said Devyani Javeri, analyst at Edelweiss Capital.

“These recommendations cement TRAI’s reputation as a pro-consumer regulator,” said Credit Suisse in its latest report on telecoms. “Its recommendations should lead to higher competition and better coverage. But they have a negative impact for current incumbents, primarily Bharti and Vodafone Essar,” the report says.

Higher annual spectrum charges could deter operators from obtaining additional spectrum and they could instead opt to increase the existing capacity through additional investments, Javeri said. The annual spectrum charges have been increased by one percentage point as a share of annual gross revenue if operators are using 10 MHz or more spectrum. The charges remain unchanged for operators using 8 MHz or less.

TRAI’s recommendation would limit additional spectrum grant to incumbent GSM players. “If defence forces free up additional 20 MHz spectrum in the current year, it would allow entry of 3-4 new operators in each circles," says Credit Suisse’s report.

Operators such Aircel, Idea and Vodafone, which have already applied and have received licence would benefit from the new recommendation as they are waiting for spectrum. According to industry experts Aircel has licences for 14 circles, Vodafone (Essar) has licences for six circles and Idea has for two.

TRAI’s recommendations on mergers and acquisitions have virtually ruled out mergers between larger players given that a combination of any two large operators would breach the market share limit of 40 per cent.