New spectrum auction prices to drive consolidation
04-08-2012
Four operators not expected to bid
The Indian Cabinet yesterday fixed the 1800MHz spectrum auction base price at Rs 14,000 crore for five MHz of pan-India (22 circles) spectrum. This was 22 per cent lower than sector regulator Trai's recommendation of Rs 18,000 crore. The base price for 800-MHz spectrum used by CDMA operators has been fixed at 1.3 times that of the 2G spectrum in 1,800 MHz.
It was also decided that the current spectrum usage charges would continue, with operators paying 3-8% of adjusted gross revenues. The Cabinet deferred any decision on the other controversial issue of imposing a one-time spectrum charge on incumbent operators for their spectrum after the EGoM recommended it should wait till the Supreme Court hearing on the issue.
Communications Minister Kapil Sibal told reporters after the meeting, "In this environment, this is a firm signal from the government that India means business and its policies are in favour of investors. It is a signal we want to lower the reserve price". He said the government would appoint an auctioneer and the EGoM would meet on Monday to decide the auction process.
The industry said that even the reduced base price would make it bleed. A senior Vodafone India executive said "the base price is very high. The reduction should have been 80 per cent....the metros and A circles will remain virtually out of reach for operators". Rajan S Mathews, director general of Cellular Operators Association of India, said, "The high reserve price can impact tariffs by 30 paise a minute and additional debt of around Rs 3,25,000 crore would have to be raised by telecom players to fund bids. Banks do not have that kind of bandwidth".
The impact of the Cabinet decision on government revenues might be neutral. While it will get less revenue from the auction than the expected Rs 50,000 crore based on the regulator's calculation, it would be compensated by a higher average spectrum usage charge.
For the two slots available for new operators in the GSM auction, at least three players - Telenor, Sistema and Reliance Industries - are expected to slug it out. Operators say many of them, like Telenor (expected to bid for only nine circles) or incumbent operator Idea Cellular (whose licences were cancelled in seven circles), would not go for pan-India bidding.
Most of the other new players whose licences were cancelled will stay away. These include STel, Etislatat-DB, Loop Telecom and, probably, Videocon, whose future plans are not clear. As a result, the industry would see substantial consolidation, with the number of players shrinking from an average of 12-13 per circle to at the most 9-10. The number of licences (277 currently) across the country will shrink to 221 after the auction. The number could go down further to seven or eight if the Supreme Court takes an adverse call on the future of 51 other licences issued before 2008.
Based on Business Standard report
The Indian Cabinet yesterday fixed the 1800MHz spectrum auction base price at Rs 14,000 crore for five MHz of pan-India (22 circles) spectrum. This was 22 per cent lower than sector regulator Trai's recommendation of Rs 18,000 crore. The base price for 800-MHz spectrum used by CDMA operators has been fixed at 1.3 times that of the 2G spectrum in 1,800 MHz.
It was also decided that the current spectrum usage charges would continue, with operators paying 3-8% of adjusted gross revenues. The Cabinet deferred any decision on the other controversial issue of imposing a one-time spectrum charge on incumbent operators for their spectrum after the EGoM recommended it should wait till the Supreme Court hearing on the issue.
Communications Minister Kapil Sibal told reporters after the meeting, "In this environment, this is a firm signal from the government that India means business and its policies are in favour of investors. It is a signal we want to lower the reserve price". He said the government would appoint an auctioneer and the EGoM would meet on Monday to decide the auction process.
The industry said that even the reduced base price would make it bleed. A senior Vodafone India executive said "the base price is very high. The reduction should have been 80 per cent....the metros and A circles will remain virtually out of reach for operators". Rajan S Mathews, director general of Cellular Operators Association of India, said, "The high reserve price can impact tariffs by 30 paise a minute and additional debt of around Rs 3,25,000 crore would have to be raised by telecom players to fund bids. Banks do not have that kind of bandwidth".
The impact of the Cabinet decision on government revenues might be neutral. While it will get less revenue from the auction than the expected Rs 50,000 crore based on the regulator's calculation, it would be compensated by a higher average spectrum usage charge.
For the two slots available for new operators in the GSM auction, at least three players - Telenor, Sistema and Reliance Industries - are expected to slug it out. Operators say many of them, like Telenor (expected to bid for only nine circles) or incumbent operator Idea Cellular (whose licences were cancelled in seven circles), would not go for pan-India bidding.
Most of the other new players whose licences were cancelled will stay away. These include STel, Etislatat-DB, Loop Telecom and, probably, Videocon, whose future plans are not clear. As a result, the industry would see substantial consolidation, with the number of players shrinking from an average of 12-13 per circle to at the most 9-10. The number of licences (277 currently) across the country will shrink to 221 after the auction. The number could go down further to seven or eight if the Supreme Court takes an adverse call on the future of 51 other licences issued before 2008.
Based on Business Standard report
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