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Despite successful auctions, challenges ahead for telecom sector

columns Updated: Apr 03, 2015 09:33 IST
N Madhavan
N Madhavan
Hindustan Times
Reliance Jio

The spectrum scandal that shook prime minister Manmohan Singh’s UPA government may be over, but the successful end of auctions to sell airwaves may have just triggered a fresh round of acrimony involving the telecom sector.

While the last round of tussles involved companies, the ruling government, the Opposition and the courts, the new round will see a major role for the Telecom Regulatory Authority of India- and the Modi government. This may set off a new round of political lobbying on everything from quality to spectrum-renting and mergers.

Companies must face five major challenges to justify the Rs 1.1 lakh crore they would have to cough up to the government for the spectrum they bid for and won. Here they are.

Economic Challenge:

A tug-of-war between the government and telecom operators is already out in the open. While the Cellular Operators’ Association of India (COAI), the 2G lobby, is careful not to speak of an immediate tariff rise, it is talking of a 10 to 12% increase after a year or so — as it questions communications minister Ravi Shankar Prasad who says there will only be a marginal tariff hike arising from the hefty spectrum fees. TRAI will have to step in to assess the numbers and pronounce its views. While that happens, industry players must manage the loans they need to buy spectrum.

Quality Challenge:

TRAI’s views on tariffs are monitored closely, but its views on quality may become critical. Making efficient use of spectrum and borrowed money is critical, but shortchanging on quality in order to manage costs may incur the wrath of both the government and the regulator.

Consolidation Challenge:

The government is expected to pronounce within months guidelines for both industry consolidation and sharing of spectrum in the coming months. Simmering politics that ebbed after spectrum auctions may resurface on this. Based on these new rules, the industry will have to realign itself again — although the new spectrum rules provide for elbow room in usage of spectrum to boost efficiency.

4G/LTE challenge – Reliance Jio, Mukesh Ambani’s ambitious entry into the telecom sector, is set to enter the market in a matter of months – and is bound to usher in competition in a big way. Industry players will have to match up to Jio’s 4G ambitions with matching expenditure on marketing, infrastructure and services – even as they spend more on spectrum. Some of them will likely loan out spectrum to the cash-rich Reliance Industries Ltd, Jio’s parent.

Net neutrality challenge: Pressure is on the industry to embrace Net Neutrality (under which content and application services are free of telco control). TRAI has just issued a consultation paper on this. If Net Neutrality is strictly enforced, the industry would have to make money mostly from calls or data services and not charge for apps like Skype or WhatsApp. They charge WhatsApp now. But even voice calls can now be increasingly made over the Internet using apps. This would put more economic pressure on the industry.