Home >Politics >News >Will Trai ring the death knell?

Will Trai ring the death knell?

Will Trai ring the death knell?

New Delhi: The Telecom Regulatory Authority of India (Trai) has proposed new measures that would, if implemented, lead to the business of telecom services becoming unviable in the country, analysts and companies said.

The proposals follow a 2 February Supreme Court ruling cancelling 122 licences and calling for an auction of the surrendered spectrum. The court had asked the regulator to come up with recommendations on the auction method by June.

All this has resulted in banks becoming wary of lending to the industry, even as the cancellation of licences has forced some overseas investors to exit the country and others to threaten legal action.

Trai on Monday suggested the auction of 5 megahertz (MHz) of spectrum in the 1,800MHz band at a total 3,622 crore per MHz across the country. This comes to a total reserve price of as much as 18,110.9 crore for the full 5MHz that’s needed to start mobile telephony services.

It further suggested a pan-India reserve price of 7,244.36 per MHz in the 800/900Mhz band, and 14,488.72 per MHz in the 700MHz band needed for 4G services.

In the 2010 radio waves auction, an operator would have paid 16,750.6 crore for a 5MHz national slot of 3G spectrum. None of the telcos that participated in that auction were successful in getting a pan-India slot.

Trai has also suggested this 5MHz of spectrum be auctioned in blocks of 1.25MHz, making it almost impossible for a new operator or an operator with a (soon-to-be) cancelled licence, due to the 2 February Supreme Court verdict, to enter the market.

“There are only two scenarios where a new operator can re-enter the market. One is if they win all four slots of spectrum, and the other is if they are the second highest bidder. In the second scenario, the operator will be given 5MHz of spectrum to start services whenever available. A maximum of 7.5MHz of spectrum (per circle) will be put up for auction," a Trai official explained.

Reacting to the recommendations, Vodafone India Ltd expressed its concern. “We believe that several of these recommendations are retrograde, and if accepted will do irreparable harm to the industry," a spokesperson said. “It will hamper the ability to connect the unconnected and goes against the objectives of the National Telecom Policy of ensuring improved rural teledensity and right to broadband."

Analysts also expressed their concern about the tariffs following the Trai recommendations.

“The Indian telecom sector is reeling under hyper-competition due to overcapacity, and is under cash strain due to high prices paid for 3G spectrum and the capital-intensive nature of the industry. If the new guidelines on spectrum are accepted by the government in totality, then the business models by the incumbents and new operators would have to be redrawn as operators would have to pay a significantly higher price for the spectrum, which may ultimately lead to an upward revision in tariffs," said Hemant Joshi, partner at Deloitte Haskins and Sells.

Jaideep Ghosh, partner at KPMG India, said, “The Trai recommendations on the hike in reserve prices appears significantly on the higher side and is likely to be a strain on the resources of the bidders, especially with a highly competitive market landscape. While the proposed auction is in blocks of 1.25MHz, this itself will be inadequate to commence or continue operations. A higher reserve price and resultant auction price are likely to lead to an increase in tariffs by service providers."

A Uninor spokesperson said in an emailed statement, “While we study them in detail, it seems obvious that some of these recommendations will create severe negative impact on the entire industry. It is up to the political leadership of India to now ensure that the gains of the past few years of affordable phone calls for India’s people are not undone."

The new set of recommendations reiterated Trai’s earlier suggestion to take back spectrum in the 900MHz band allocated to the older operators, including Bharti Airtel Ltd and Vodafone, and replace it with spectrum in the 1,800MHz band. This would mean a significant loss of competitive advantage that the older operators had, due to entering the sector early.

“Spectrum available with the service providers in the 900MHz band should be replaced by spectrum in the 1,800MHz band, which should be charged at the price prevalent at the time of refarming, not later than the due date of renewal of the licences," Trai said.

Trai has also suggested this refarming be applied to the dual technology operators (GSM and CDMA), including Reliance Communications Ltd (RCom) and Tata Teleservices Ltd.

“The authority recommends that DoT (department of telecommunications) should immediately arrange to allocate spectrum in the 1,900MHz band for refarming the spectrum in the 800MHz band," the Trai recommendations said.

Trai has also suggested a timeline for auctioning all the spectrum in the various bands earmarked for mobile telephony services in the country. Apart from the 1,800MHz band in the current fiscal, Trai has suggested the auction of spectrum in the 800MHz band in the current fiscal; spectrum in the 900MHz band in the first quarter of 2013-14; remaining spectrum in the 1,800MHz band in the first half of 2013-14; spectrum in the 2,100MHz band in the second half of 2013-14; spectrum in the 700MHz band in the first half of fiscal year 2014-15; and auction of additional spectrum in the 2,300MHz band in the second half of fiscal year 2014-15.

While 900MHz and 1,800MHz are needed for basic GSM-based mobile telephony, spectrum in the 800Mhz and the 1,900MHz band is needed for basic CDMA services. Spectrum in the 700MHz and 2,300MHz bands are primarily used for high-speed wireless data services categorized as 4G, while 3G allows some amount of high-speed data and high-capacity voice.

Trai has said since the government has ruled that applications for renewal of licences come in 30 months prior to expiry, the auction for 900MHz should take place 18 months ahead to allow enough time for an operator to start services.

Trai has also suggested a delay in the auction of 700MHz spectrum as by then the ecosystem for LTE (long-term evolution, a 4G technology) would be relatively more ready. Analysts say that in a price-sensitive market such as India, launching a new technology would be too expensive and unviable.

“In the future, auction of all spectrum in any band can be used for deploying any services in any technology," Trai recommended. It suggested that if an operator wants to use a certain band of spectrum for a technology other than what it is earmarked for, then it should pay the market-discovered price for it, apart from a 1% spectrum usage charge (SUC). The 1% SUC would be applicable to operators with spectrum acquired solely by paying market prices. If an operator has both kinds of spectrum, the normal rates will apply.

Trai suggested that simultaneous multi-round ascending (SMRA) auction used for 3G and BWA (broadband wireless access) in 2010 be used. The final price will be the reserve price for the next auction, it said.

Trai suggested an easier payment methodology, in which a winning operator will pay 33% initially (at the end of auction). After a two-year moratorium, it will have to pay the remaining amount in 10 instalments.

Trai has also suggested that 2.4MHz of 2G spectrum be immediately taken back from Mahanagar Telephone Nigam Ltd.

A DoT official said on condition of anonymity that the price was not as high as it was being made out to be as the operators would have the spectrum for 20 years. The official also said the auction recommendations will be looked into by an empowered group of ministers that will decide the next course of action.

Among the telecom operators, Bharti lost 3.55% to close at 312.65 on Monday on BSE, when the benchmark Sensex lost 1.6% to close at 17,096.68 points. Tata Teleservices (Maharashtra) Ltd lost 1.26% to end at 14.15, RCom lost 5.51% to close at 81.50, and Idea Cellular Ltd lost 5.51% to end at 83.25.

Also See | Price Surprise (PDF)

Graphic by Sandeep Bhatnagar/Mint


Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

My Reads Redeem a Gift Card Logout