High reserve price for spectrum worries telcos

With the telecom regulator Trai fixing higher reserve price for spectrum, there is an apprehension that telecom companies may not bid aggressively this year.

The Telecom Regulatory Authority of India (Trai) had recommended reserve price for spectrum in the 700 MHz, 800 MHz, 900 MHz,1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz bands and it will be auctioned in June-July this year.

With the Trai suggesting a steep reserve price of Rs 11,485 crore per MHz nationwide in 700 MHz category, the government expects to garner over Rs 5.5 lakh crore in this year alone.

Though telecom companies are given time to give their feedback to the regulator on the reserve price, the government takes a final call on the issue. Though the most efficient band of spectrum, 700 MHz, will be put for auction, there is an apprehension that the telecom firms are unlikely to bid aggressively due to higher price.

“The ability of the operators to pay for spectrum will be constrained as realised rate for voice and data are not growing but, in fact, declining for the last few quarters and the balance sheets are already overstretched and there is no adequate appetite for equity in the market,” Deloitte Haskins & Sells LLP Partner Hemant Joshi said.

Timing of auction

He said the timing of auction should be carefully considered so that all players can effectively participate. Even Bharti Airtel said the base price proposed for 700 MHz spectrum makes it unaffordable for them to buy any of the airwaves in the band.

“We believe that the price which has been proposed for 700 MHz just makes it very expensive for us to buy any of the spectrum, so we believe that we cannot afford to buy that spectrum at that price,” Bharti Airtel MD and CEO (India & South Asia) Gopal Vittal said during an investor call.

Leading operators had requested the regulator to defer sale of 700 MHz spectrum, saying that ecosystem for providing services in this band was not developed and sale would lead to underutilisation of the spectrum for several years and block industry’s crucial fund.

The telecom operators’ body COAI also said it will approach the regulator to understand the methodology it used to conclude recommendations.

“Our first point of call is to express to Trai why I believe there may be an error in terms of methodology they have used and process that they have come to this conclusion. We want to take a look at that,” Cellular Operators Association of India (COAI) Director General Rajan S Mathews said.

‘Check market conditions’

Though Trai had explained the mechanism it used for calculating spectrum base price in its recommendation, COAI wants to re-confirm with the regulator if it has taken into consideration market conditions and financial conditions of telecom operators.