New Delhi: Callers used to paying less than 1 per minute in India may get a jolt from their monthly bills after the nation’s mobile-phone companies agreed to spend $18 billion buying airwaves from the government.

Seven of the country’s wireless carriers need to find ways to foot the bill for spectrum bought during a 19-day auction that concluded last week. As much as one-third of their bids must be paid by next week, with the rest being due in installments starting in two years.

India has 900 million wireless subscribers and is home to the fastest-growing major market for smartphones. Carriers including Bharti Airtel Ltd, Vodafone Group Plc and Idea Cellular Ltd generate most of their revenue from voice calls, making it likely the carriers will use small price increases to help pay for the airwaves and necessary network maintenance.

“You can’t have the lowest tariffs in the world when you have so much expensive spectrum coming out in the auction," Nitin Soni, a director at Fitch Ratings, said by e-mail. “This anomaly has to change."

As more Indian consumers buy smartphones, the nation’s wireless carriers have seen large growth in data usage in the last few quarters. However, voice calls still contribute most of their revenue. At Bharti Airtel, the biggest operator, voice is nearly 80% of sales.

Bharti Airtel committed to spend 29,310 crore ($4.7 billion) on airwaves, according to India’s communications ministry.

Vodafone, Idea

Standard and Poor’s domestic unit Crisil Ltd estimates carriers will have to raise rates, or tariffs, by 0.05 per minute to offset their spectrum costs. For Bharti Airtel, that would suggest a 13% increase on its average voice rate.

Soni estimates a 10% increase in revenue per user could enable Bharti to pay for its new airwaves in less than eight years.

Second-ranked Vodafone bid 25,960 crore for spectrum, and No. 3 Idea will pay 30,310 crore.

“There is a lot of money going out of their pockets," said Rishi Tejpal, an analyst with Gartner Inc. in New Delhi. “It might come down to end users to pay for increased tariffs."

India uses a staggered approach to allocating spectrum, selling 22 regional “circles" of coverage with different expiry dates.

Growth potential

When licenses expire, companies compete again in a new auction for the right to use spectrum. The incumbent carriers largely bought back the same airwaves they’ve been using with the new permits valid for 20 years.

“The increased financial burden will lead to the industry’s cost structure being changed drastically," Rajan Mathews, director general of the Cellular Operators Association of India said in an e-mailed statement. “The operators will not be left with much choice but to increase the tariffs."

Spokesmen for Vodafone and Idea Cellular didn’t return calls or e-mails seeking comment. Bharti Airtel declined to comment.

Even incremental increases in calling rates will add up, given India’s large subscriber base and potential for growth, said Rohan Dhamija, head of India and South Asia for Analysys Mason.

“Given what they paid for spectrum, prices do need to increase for their business cases to hold," Dhamija said. How much and how quickly prices will rise depends on the operator, Dhamija said.

Data surge

While voice calls account for the vast majority of current sales, the carriers are likely to see most growth coming from data services as users switch to smartphones and spend more time shopping or watching videos.

Analysys Mason expects voice calling to increase 5% in the next five years, while data use will surge eightfold in the period.

The entrance of Mukesh Ambani’s upstart wireless operator, Reliance Jio Infocomm Ltd, may complicate the ability of carriers to raise rates, says PwC India’s telecommunications leader, Arpita Agrawal.

“In this competitive environment, operators will find it difficult to raise data or voice tariffs in the immediate term," Agrawal said in an e-mail.

While Reliance Jio has yet to start service, the company has been acquiring access to spectrum since 2010, and Ambani has said he wants to build “the largest broadband network that the world has ever seen."

“The data price points will fall when Reliance Jio enters the market," Fitch’s Soni said. “But the main revenue contributor for the major operators is not the data segment. Voice is the bread and butter business." Bloomberg

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