New Delhi/Mumbai: In a fresh twist to the ongoing saga on spectrum auction, the department of telecommunications (DoT) is proposing a halving of the payment period for the spectrum that an operator wins in the coming auction, while leaving the validity of the spectrum and the licence unchanged at 20 years.
The move is intended to make it easier for the companies to pay for the spectrum upfront and thereby increase the number of bidders, but could add to the confusion that had arisen after the Telecom Regulatory Authority of India (Trai) proposed an unexpectedly high base price, which companies believe will threaten the viability of the sector.
“The allotment will be for 20 years, but the amount they pay will be for 10 years. After this time, they (the telcos) will have to pay the new prevailing market price at the time,” a senior DoT official said. “There is always an auction taking place and there is always a current market price for the spectrum. We have asked Trai to give us their analysis of the advantages and disadvantages of such a move for the operators and the government.”
The growing confusion over the process surrounding the spectrum auction is beginning to affect companies, with some of them putting their fund mobilization plans on hold. On Monday, Reliance Communications Ltd (R-Com), the mobile telephony arm of Anil Ambani-led Reliance Group, said that the proposed sale of its telecom tower assets will proceed only after regulatory uncertainties in the Indian telecom sector are resolved.
“We continue to engage with potential investors in order to complete the transaction,” Punit Garg, president of R-Com, told analysts at a conference call on Monday. “DoT and Trai are working on issues related to spectrum allocation and licensing guidelines. Once clarity emerges on various pending regulatory issues, then (the) transaction will proceed further.”
Over the last two years, R-Com has been looking to hive off its 50,000 telecom towers in order to bring down debt, but hasn’t been able to conclude a deal. Garg had said during an analyst call in February that R-Com was targeting significant debt reduction by March 2013. On 31 March, R-Com had net debt of Rs.35,839 crore, 12% higher than at the end of the first quarter of fiscal 2012.
Though analysts have said in the past that any move to sell the tower assets will have to wait till regulatory issues are clarified, this is the first time that R-Com’s management has said on record that the deal may have to wait.
Meanwhile, Trai is expected to forward its opinion on the issue in time for the next meeting of the empowered group of ministers (eGoM) on 5 June.
“The operators have expressed an inability to raise that much money in one go. We are looking at various options,” a second senior DoT official said requesting anonymity. “They will pay for a shorter period.”
The move means that the reserve price would fall significantly, making it easier for the telcos to pay for the spectrum in one go, as banks would be more comfortable lending the smaller amounts.
The Telecom Commission, which met on Saturday to discuss the reserve price for the spectrum to be auctioned later this year, has asked Trai to analyse the impact of pricing on subscribers, operators and government revenue. The impact analysis will be sent to the eGoM led by finance minister Pranab Mukherjee.
The Telecom Commission is the highest telecom policy decision-making body of the government and is chaired by telecom secretary R. Chandrashekhar. It also agreed in principle to allow the mortgaging of spectrum and a spectrum usage charge of 3% of adjusted gross revenue.
The eGoM is expected to be the final decision-maker on the auction.
This is the third time that Trai will be looking into the issue in the last three months since the 2 February Supreme Court verdict that cancelled 122 licences allotted to nine companies. A DoT official said that the main aim of the analysis was to see whether there was a case to bring down the reserve price suggested by Trai. The apex court had asked the telecom regulator to look into the method and criteria for the auction in time for it to take place by 7 September.
Trai has twice submitted this calculation to DoT, proposing a reserve price of Rs 3,622 crore per megahertz (MHz) for spectrum in the 1800MHz band. All the operators and stakeholders have lodged various protests and are lobbying hard to have this reserve price reduced.
Interestingly, many stakeholders have expressed hope that there may be a shift in Trai’s stance since its leadership has changed. Earlier this month, former commerce secretary Rahul Khullar took over as its chief from J.S. Sarma.
Trai’s calculations show that the impact of the proposed reserve price on tariffs would be 4 paise per minute in the first year and lower in subsequent years. Operators and stakeholders have disagreed with this calculation, saying the high spectrum price would lead to tariffs jumping 100%, making the sector unviable.
Trai reiterated its recommendations on 23 May, tweaking a few proposals, including increasing the spectrum usage charge to 3% from the earlier 1%.
In a meeting on the recommendations on Thursday, the Telecom Commission had decided to double the spectrum for auction to 10MHz (in blocks of 1.25MHz), if available after reserving airwaves for refarming purposes. The Telecom Commission also decided to retain the existing roll-out obligation norms and agreed with the Trai suggestion on liberalization of spectrum—that any technology can be used. Other decisions made include allowing the older operators to bid for two slots and the newer ones to bid for four slots of the spectrum up for auction.
In a statement on the Telecom Commission’s decisions on Saturday, the GSM Association (GSMA), a representative body of GSM operators across the world, expressed concern that the Telecom Commission had not reduced the high reserve price levels. “If the prices remain the same, they present a major disincentive to future investment in India and will threaten the country’s leadership in mobile technology. GSMA also believes that spectrum usage charges should be kept at a minimum,” the statement said.
Meanwhile, in an interview with CNBC-TV18 on Monday, R-Com’s Garg pointed out that the present lack of clarity on spectrum allocation and the re-auction of licences that were taken away from existing telecom operators were holding up the valuation exercise for Reliance Infratel Ltd, R-Com’s telecom tower subsidiary. He stated that a deal could be completed by the second half of fiscal 2013 if regulatory clarity emerges by then.
“The deal has been delayed in any case, even before the regulatory uncertainty set in and we are not expecting it to be concluded anytime soon,” a telecom analyst with a Mumbai-based brokerage firm said. He declined to be identified as he is not authorized to speak to the media. “The market is not factoring in any upside from whatever the company has announced about the telecom tower company stake sale so far.”
R-Com’s earnings for the March quarter, announced on 26 May, surpassed the Street expectations. It reported a net profit of Rs 331.60 crore, 78% higher quarter-on-quarter. Revenue in the same period grew 5% to Rs 5,310 crore.
The company registered an operating profit of Rs 1,632.20 crore, and an operating profit margin of 30.7%, lower than the 31.9% margin reported in the December quarter.