The Indian telecom sector’s current situation merits a more progressive line of thinking from the regulator to ensure that the sector continues to progress on the government’s stated agenda of inclusion. But TRAI’s recommendations for 2G auctions and spectrum refarming would actually end up achieving more of the opposite.
In July 2012, India’s mobile GSM subscriber base reached 679.05 million from just over 1 million in 1998 through just voice services for the most part. And by that time, CDMA subscriptions had reached around 230 million (AUSPI). This stupendous growth in subscriptions has been a revelation of sorts globally, along with the surprisingly low price points at which Indian telecom players are providing these services. From an ARPU of Rs.362/user/month for GSM players in December 2005, the figure has declined to Rs.100/user/month in March 2011 as per a PwC report. The report further highlights that India’s ARPUs are around 3 and 10 times lower than developing and developed countries respectively on an average.
However, the recent trends point to trouble in paradise. For a sector that is already struggling with low ARPUs, slowing penetration and high debt, the last straw would really be a lack of appreciation of its achievements and insensitivity towards its pressing issues. But unfortunately, that insensitivity is real, and it is coming from none other than the regulatory authority TRAI. By proposing a spectrum reserve price of Rs.36.22 billion per MHz on a pan-India basis in the 1800 MHz. band for the 2G spectrum bidding process planned in November, the regulator is imposing a burden that only serves to undo much of the good that has been achieved by the telecom sector in the past.
In February this year, the Supreme Court quashed all 122 licenses that were given out during the A. Raja regime, and TRAI came up with its revised recommendations as per the SC’s directions. The price it has proposed has united an otherwise intensely competitive industry against what they term as an atrocious figure. The price is 10 times higher than the benchmarks used under A. Raja. And at Rs.180 billion plus for 5 MHz, it even beats the 3G auctions that took place last year, where the reserve price was Rs.168.28 billion (and they were globally declared as atrociously overpriced!). The regulator has stuck by its argument and asserts that the new reserve price will impose a relatively insignificant burden on end consumers. Later on, the industry got some respite as an Empowered Group of Ministers (EGoM) panel led by then Home Minister P. Chidambaram brought down the reserve price to between Rs.141.11 billion Rs.151.11 billion for 5 MHz. on a pan-India basis. But players are far from satisfied. The level of competition this time around for the re-auctioning process is not as bullish as it was when the first auction was carried out. One has to keep in mind that licences of most of the telcos are up for renewal soon. Also, they would not be exempted from paying for the spectrum they gain through any source (direct buying via auction or M&A activity). Thus, the incumbents are feeling reluctant to join the bidding process. The same goes for the relatively new operators in India, for their investments have really not paid off well. TRAI is assured of 2-3 big telecom players participating in the process, but it already seems that the top circles may not see significant participation due to high prices.
There are legitimate reasons why such exorbitant pricing will do little more than providing some short term gains to the government. TRAI has gone on and on discussing how the price will have limited impact on the balance sheet and the impact will in fact come further down over a period of 20 years. But Franco Bernabè, Chairman, GSMA and Chairman & CEO, Telecom Italia Group, cautions with respect to the TRAI decision, “Efforts to squeeze money out of mobile operators for some perceived short-term gain will only reduce investment in networks, inhibit growth of mobile services and drive up consumer prices – limiting the value that the public will derive from spectrum resource in the long term.”
In July 2012, India’s mobile GSM subscriber base reached 679.05 million from just over 1 million in 1998 through just voice services for the most part. And by that time, CDMA subscriptions had reached around 230 million (AUSPI). This stupendous growth in subscriptions has been a revelation of sorts globally, along with the surprisingly low price points at which Indian telecom players are providing these services. From an ARPU of Rs.362/user/month for GSM players in December 2005, the figure has declined to Rs.100/user/month in March 2011 as per a PwC report. The report further highlights that India’s ARPUs are around 3 and 10 times lower than developing and developed countries respectively on an average.
However, the recent trends point to trouble in paradise. For a sector that is already struggling with low ARPUs, slowing penetration and high debt, the last straw would really be a lack of appreciation of its achievements and insensitivity towards its pressing issues. But unfortunately, that insensitivity is real, and it is coming from none other than the regulatory authority TRAI. By proposing a spectrum reserve price of Rs.36.22 billion per MHz on a pan-India basis in the 1800 MHz. band for the 2G spectrum bidding process planned in November, the regulator is imposing a burden that only serves to undo much of the good that has been achieved by the telecom sector in the past.
In February this year, the Supreme Court quashed all 122 licenses that were given out during the A. Raja regime, and TRAI came up with its revised recommendations as per the SC’s directions. The price it has proposed has united an otherwise intensely competitive industry against what they term as an atrocious figure. The price is 10 times higher than the benchmarks used under A. Raja. And at Rs.180 billion plus for 5 MHz, it even beats the 3G auctions that took place last year, where the reserve price was Rs.168.28 billion (and they were globally declared as atrociously overpriced!). The regulator has stuck by its argument and asserts that the new reserve price will impose a relatively insignificant burden on end consumers. Later on, the industry got some respite as an Empowered Group of Ministers (EGoM) panel led by then Home Minister P. Chidambaram brought down the reserve price to between Rs.141.11 billion Rs.151.11 billion for 5 MHz. on a pan-India basis. But players are far from satisfied. The level of competition this time around for the re-auctioning process is not as bullish as it was when the first auction was carried out. One has to keep in mind that licences of most of the telcos are up for renewal soon. Also, they would not be exempted from paying for the spectrum they gain through any source (direct buying via auction or M&A activity). Thus, the incumbents are feeling reluctant to join the bidding process. The same goes for the relatively new operators in India, for their investments have really not paid off well. TRAI is assured of 2-3 big telecom players participating in the process, but it already seems that the top circles may not see significant participation due to high prices.
There are legitimate reasons why such exorbitant pricing will do little more than providing some short term gains to the government. TRAI has gone on and on discussing how the price will have limited impact on the balance sheet and the impact will in fact come further down over a period of 20 years. But Franco Bernabè, Chairman, GSMA and Chairman & CEO, Telecom Italia Group, cautions with respect to the TRAI decision, “Efforts to squeeze money out of mobile operators for some perceived short-term gain will only reduce investment in networks, inhibit growth of mobile services and drive up consumer prices – limiting the value that the public will derive from spectrum resource in the long term.”
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