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Ban leads to rise in telcos’ capital expenditure

Ban leads to rise in telcos’ capital expenditure
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First Published: Sun, Jan 10 2010. 09 19 PM IST

Wanting more: With consumers complaints about poor service quality increasing, higher spending by firms doesn’t seem to be working. Rajkumar/Mint
Wanting more: With consumers complaints about poor service quality increasing, higher spending by firms doesn’t seem to be working. Rajkumar/Mint
Updated: Sun, Jan 10 2010. 09 19 PM IST
New Delhi: The government’s decision to stop giving out additional radio spectrum to mobile phone operators is affecting network quality despite service providers spending more on equipment.
“Our capital expenditure has gone up more than we had estimated,” said the chief executive officer (CEO) of one of the larger telcos. “We have to install additional electronic equipment beyond what was estimated, especially in saturated markets like Delhi and Mumbai.” This trend was confirmed by a top executive of a rival telecom operator, who said capital expenditure has gone up significantly in the business districts of metros.
All the people quoted in the story spoke on condition of anonymity, citing the sensitive nature of the issue.
“Our executives are constantly on the road, travelling through all parts of cities like Delhi to check signal strength,” the CEO said. “Operators are increasingly being blamed for call drops and deteriorating quality of services, even as the raw material for our services—spectrum—has not been provided.”
In March, the department of telecommunications (DoT) decided to stop allocation of additional spectrum above 6.2MHz till a decision was taken on the recommendations of a committee on the so-called second-generation (2G) radio waves.
Wanting more: With consumers complaints about poor service quality increasing, higher spending by firms doesn’t seem to be working. Rajkumar/Mint
With consumers facing increasing instances of poor services, increasing or reallocating capital expenditure to the extent of 10-20% in the past two months by the firms to install more equipment does not seem to be working and the situation is set to only get worse.
An official of the Telecom Regulatory Authority of India (Trai), who looks into the quarterly performance indicators report prepared by the regulator on the quality of India’s telecom sector, said the report for the three months to December is expected to show a significant rise in congestion levels. The report is expected later this month.
“The mix for their capital expenditure has changed for all the telcos from what they initially planned,” said an analyst with a local brokerage. “What they had allocated for use in non-wireless businesses and expansion into new and rural markets has come down, and been used in the wireless businesses.”
Another analyst at an international broking house said the telecom firms have spent money notably on electronic items such as boosters and repeaters due to the congestion on their networks in the metro cities.
This is despite the fact the Indian mobile phone companies are among the most efficient users of radio spectrum. Bharti Airtel Ltd and VodafoneEssar Ltd have 10MHz of spectrum in New Delhi but service as many as 5.6 million and 4.6 million subscribers, respectively. In countries such as the UK, each operator has at least 25MHz of air waves, compared with an average of 6MHz in India.
In a recent communique to Trai, Vodafone Essar said the total spectrum available to India’s mobile industry is half to two-thirds of the global average. “This situation has driven the industry to the brink, with roughly one-quarter of the average spectrum allocation of international operators despite higher customer bases,” the firm said. “Benchmarking shows that Indian spectral efficiency is probably the best in the world.”
Keeping up network quality has assumed urgency, with Indian regulators enabling processes that would let subscribers change service providers without changing their telephone number. “The loyalty of the customers is dependent on the network quality, and if it drops, then the higher revenue generating customers could end up going to rival operators while still keeping their numbers,” the analyst quoted first said.
According to him, even though the cost of 2G equipment has fallen drastically, it will become almost useless once 3G comes in. “This equipment is primarily for plain-vanilla voice services from which the telcos are not looking to generate much revenue in the coming quarters,” the analyst said. “An increasing part of revenues will come from data and other non-telecom services that need more spectrum and generate more revenue.”
The nearing auction of 3G spectrum is expected to cost a telecom firm $1 billion (Rs4,580 crore) and installing infrastructure could cost an additional $1-1.5 billion.
In April, the Telecom Disputes Settlement and Appellate Tribunal had said that according to licensing agreements, India’s telcos had a right to spectrum of up to 6.2MHz. It failed to specify what action was to be taken in the case of those companies which had spectrum allotted above 6.2MHz.
For instance, Bharti Airtel has already spent around a quarter of its estimated capital expenditure of $2 billion that it had given guidance for at the beginning of the year on its wireless business. At the time, the firm had said that half the money would go towards its tower arm (Bharti Infratel Ltd) while the rest would go towards its non-mobile businesses including broadband and IPTV. “If it has been spent on the wireless business, that would mean it went primarily to putting up equipment like repeaters and boosters which are not taken care of by the tower firm,” the analyst said.
A government spectrum committee had recommended that telcos in need of additional spectrum should bid for it through an auction, rather than having spectrum allocated to them. Following this, the finance ministry asked DoT to stop any further allocation of additional spectrum above 6.2MHz till the policy on additional allocation was clarified.
“They (finance ministry officials) are saying that if spectrum has to be auctioned, then let the price discovery of the spectrum be done and then we will auction more spectrum,” a senior DoT official said. “The price discovery will most probably be done based on the 3G auction.”
Trai is preparing its recommendations on the spectrum committee’s report after taking into account opinions from various stakeholders. The recommendations are expected by the end of January.
shauvik.g@livemint.com
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First Published: Sun, Jan 10 2010. 09 19 PM IST