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Valuations to be hit, industry to consolidation

business Updated: Aug 29, 2007 22:02 IST
Arun Kumar

The new recommendations of the Telecom Regulatory Authority of India (TRAI) in its 178-page paper Review of license terms and conditions and capping of number of access providers is expected to open a Pandora’s Box in the telecom sector.

With no cap on the number of operators in each circle and more efficient use of spectrum under new technology, the valuation of the existing players, particularly the GSM operators, who were craving for additional spectrum for some time, may be impacted.

The telecom sector watchdog has also argued in favour of auctioning all spectrum, except those in the 800, 900 and 1800 MHz bands, to ensure efficient utilisation. This would not only make the roll-out of 3G costlier, but it could change the business model as all the GSM operators felt that 3G spectrum is a natural progression from 2G and auctioning would make the service expensive and may hinder the sector’s growth.

Given the size of the Indian telecom market and the current growth rate (nearly 6 million subscribers added each month), industry experts feel that global giants such as AT&T, Deutsche Telekom and NTT DOCOMO may enter Indian telecom space.

“FDI is allowed up to 74 per cent, infrastructure sharing is allowed and the government is soon coming out with number portability. Besides, the pan-India licence cost is just around Rs 1,600 crore. In the emerging scenario, existing players would face a tough time in retaining their customers and competing against new players,” said a senior official of a leading serviceprovider.

Unfazed by criticism, TRAI Chairman Nripendra Mishra said: “We think the convergence of technologies is a reality. The recommendations will ensure that market forces determine the price of the scarce resource. The subscriber will benefit,” Mishra said. The recommendations also underlined the need for a review of spectrum use. “Service providers with more spectrum should be asked to surrender additional spectrum in a specified timeframe,” the report suggested.

Depending upon new entrants and their ability to complete against incumbents, some of the smaller players could face the pain in terms of squeezing of margins, but this will eventually force a consolidation in the medium to the long term, an analyst said.