Fresh 2G auction: Consumer may be spared large hike

The Indian mobile consumer could be spared a large tariff hike due to the mandated auction of 2G telecom spectrum.

Industry analysts don't foresee a tariff war in the run-up to the auction and say there could be a minor pricing correction thereafter without significantly burning a hole in the consumers' pocket.

The auction, made necessary after the Supreme Court order annulled 122 telecom licences, is rather likely to trigger a consolidation in the 15-player sector, resulting in little pricing freedom to the biggies.

"Indian players such as Videocon and Unitech, who have lost their licences may find bidding a challenge and there would  be a consolidation in the sector," Mahesh Uppal, director of consultancy firm ComFirst India, told IANS.

"Heated tariff wars are unlikely in the coming months and there might be a slight correction in the price but this would not affect consumers at large. However, owing to consolidation, the huge pressure on the margins of these players would definitely get reduced," he said.

Competitive intensity resulting in tariff wars  have a significant impact on industry revenues and profitability. A reduction in tariff  lowers the average revenue per user (ARPUs) and operating margins for all industry players.

Aprehending a loss in its subscriber base following the apex court ruling, operators such as Sistema Shyam Teleservices (SSTL), which provides services across the country under the brand MTS, is offering zero paisa plans for calls and messages on the network.

Analysts said the auction is also not going to witness aggressive bidding either. For, the financials of the older players who coughed up huge amount of money for 3G bidding are not that strong. The 3G service has not really taken off so far.

"Price would not escalate as high as happened in the bidding of 3G spectrum. The result of 3G auction is here to be seen," said Ankita Somani, IT and telecom analyst with stock broking firm Angel Broking.

"Even the financial condition of the players are not that strong. For 3G these people have already taken lot of debt. For 2G again, it will be difficult," Somani told IANS.

According to Somani, the total debt status of Bharti Airtel as on Dec 31 stood at Rs.72,670 crore, Idea Cellular Rs.13,076 crore and that of Reliance Communications at Rs.38,200 crore.

The high priced bidding for 3G auction saw Bharti Airtel and Reliance Communications coughing up Rs.12,295 crore and Rs.8,583 crore respectively.

Ruling out any possibility of aggressive bidding, Jaideep Gosh, communications director of global consultancy firm KPMG, also said that companies such as Uninor and Etisalat, which are backed by foreign governments, will be in a better financial position to bid as compared to the established players.

"And yet they would be cautious bidders and would not unnecessarily splurge a huge amount of money," said Ghosh.

"This is 2G spectrum, which has limited advantages, and not 3G, which promises high speed Internet and services such as video telephony," he added.

The Supreme Court, while ordering the revocation of 122 telecom licences, has given four months' time to the affected operators to shut shops. Oslo-based Telenor which has majority stake in Uninor has been the worst affected as all its 22 licences stand cancelled following the apex court verdict.

The apex court has asked the Telecom Regulatory Authority of India (TRAI) to make fresh recommendations for grant of licence and allocation of spectrum in 2G band in 22 service areas by auction. The central government will take a decision within the next one month, considering the TRAI recommendations, and grant fresh licences.

The telecom department meanwhile has reportedly told the prime minister that the auction is a detailed process and might take time beyond 4 months. According to the department, the 3G auction process took 688 days for completion.