Telecom scam fallout: Higher tariff, dented image

The so-called 2G scam, where suspected government corruption in the award of telecom spectrum led to the cancellation of 122 service licences across the country by the Supreme Court, is one of the reasons for recent tariff hikes, apart from denting the global image of India's flourishing mobile phone industry, experts maintain.

The mobile phone industry, which was adding over 10 million new subscribers to the network every month in the past year, has seen the growth fall to less than five million now, experts say.

"The issue has definitely impacted the cost of telecom services in India," Mahesh Uppal, director of telecom consultancy firm Com First, told IANS.

"When the number of players increased and competition was cut-throat, the tariffs were low. Everybody wanted to lure subscribers. So the new licences did lead to cheaper services," he added.

Now, the reduced competition, he said, has allowed operators to hike telecom tariff.
Experts also said that till recently telecom companies were getting some radio frequency spectrum, or airwaves, free with their licences. More was allotted based on criteria related to the number of subscribers they were serving.

"But now they have to pay for both the licences and the spectrum separately," Uppal said.
As many as 122 telecom licences were ordered cancelled by the Supreme Court, finding that the process followed in 2008 was faulty. Among them Uninor had 22 licences, Loop 21, MTS 21, Videocon 21, Etisalat 15, Idea 13, S-Tel 6 and Docomo 3.

The main reasons for cancellation were that the bids were accepted on a first-come, first-served basis but the last date was suddenly advanced, allegedly suiting some players. The cost of a pan-India licence for 2G auction in 2008 was kept at Rs.1,658 crore and the total money collected on 122 licences was Rs.10,772 crore. Some found this price too little.

Last month, Reliance Communications raised call rates by 20-30 percent across India.
Bharti Airtel did away with its promotional offers in January. Idea recently said it is not mulling any tariff hike for the present. Experts stated that bigger players are increasing tariff but the smaller players will still look at the numbers.

The private players in the sector include Airtel, Vodafone, Idea, RCom, Tata DoCoMo and Aircel. Only BSNL and MTNL are in the public sector.

The Indian government lost Rs.1.8 lakh crore in the 2G spectrum allocation scam. Many high profile politicians and officers were arrested in the case. Former telecom minister A.
Raja was arrested Feb 2, 2011 along with his personal secretary R.K. Chandolia and telecom secretary Siddharth Behura. Raja got bail May 15, 2012.

DMK Rajya Sabha MP Kanimozhi was arrested May 21, 2011 as co-accused in the case and has been charged by the CBI for allegedly accepting a Rs.214-crore bribe in the 2G scam. Kanimozhi was granted bail by the Delhi High Court Nov 28, 2011.

On Feb 2, 2012, the Supreme Court ordered the scrapping of 122 telecom licences issued to nine companies in 2008.

On June 7 this year, a Delhi court dismissed a plea seeking lodging of an FIR against Prime Minister Manmohan Singh and former telecom minister Dayanidhi Maran for their alleged role in the 2G case. It dismissed the plea and fined petitioner Vivek Garg, an RTI activist, Rs.20,000.

Jaidip Ghosh, partner at KPMG in India, said there was pressure on the cost and now the situation had changed after a few telecom players exited the market following the verdict in the 2G issue.

He said tariff was still low in India and there was still some "headroom to increase price". The headline tariff was declining for a few years but the industry reached a stagnation point during 2011-end and 2012.

The situation prevalent between 2008-end till 2011-12 has changed now.

"After the licences were cancelled, these players had to exit the market. This has also led to the regulator and the government fixing a base price of spectrum to make the auction process transparent," said Rishi Tejpal, principal research analyst with Gartner.

"All the operators now consider the new base price quite high and unrealistic," Tejpal told IANS.

"With the increase in spectrum prices, the margins of the telecom firms have been impacted. Their cost of operations went up. They have tried to offset it by passing it on partially to the customers in the form of increased headline tariffs."

Even though the market was still very competitive, the operators were firm on not reducing tariffs, he said. "There will be no reduction in prices in the near future for sure.
On the contrary, we may see the tariffs going up."