Telecom tariffs could rise by at least 30% if the government fails to conduct auctions for 2G telephony spectrum by June 2, when the licences of operators who got licences in 2008 will be cancelled following a Supreme Court verdict in February. In a petition filed before the apex court, the government has said that it will take 400 days to complete the auction.
This means that the after June 2, new operators such as Uninor, MTS and Videocon will not be able to provide services as they will be left without licences or spectrum to serve their customers. If one goes by the government’s petition, the new operators will have to close their operations for almost one year, which is good enough to kill their services as even existing subscribers cannot be served.
New operators had resulted in a tariff war that brought down average rates to 45 paise per minute from one rupee. Industry watchers say their absence will drive up tariffs again as incumbents will have more pricing power.
“We are looking at an increase in tariff by at least 30 per cent in next one year,” said the CEO of a leading telecom service company. “We were not able to reduce tariffs earlier. The market is still hyper competitive and we offer tariffs on the basis of what the competition is offering.”
“If the auction is not complete within four months, up to seven operators will have close their operations in some circles and the competition will reduce drastically. This will result in an increase in tariff anywhere between 30 to 100 per cent. There is also a possibility of incumbent operators making a cartel,” said BK Syngal, former chairman of VSNL (which after privatisation became Tata Communications).
“DoT’s estimate that it would take 400 days to complete the auction process is absolutely wrong. DoT has arrived at this estimate as it is clubbing the auction process with other issues such as auction of 4G (700 band) and refarming of spectrum,” said an operator whose licence is being cancelled.
But there is still optimism. Syngal said since the auction expected was only for recent entrants, the process could well be completed by June 2.
“If the auctions are not held within four months, it will mean about eight crore subscribers are left without services. This will be a violation of the TRAI Act,” he said.
Companies that are likely to suffer if there is a delay are hopeful still. “I believe the government will take some action to protect interests of more than eight crore subscribers that are on the networks of new operators,” said VN Dhoot, chairman of Videocon Group.
Apart from cheaper tariffs, recent entrants also offered innovative tariff schemes. For example, new incumbents charge consumers on a per-second billing instead of per minute.