High spectrum costs: Brace for higher tariff

New Delhi: India's latest auction of spectrum for telecom operators attracted among the highest bids by global standards at $18 billion. But for an industry in heavy debt and low in revenue per subscriber, the question: Are auctions in the interests of customers and industry?

The latest auction fetched the exchequer somewhat more than the previous amount of $17.7 billion raised in 2010 when e-auctions in the present form began in India. Even at that time, the bid price was high, maintain PricewatehouseCoopers and the Cellular Operators Association of India.

In the 2010 auction, Indian telecom operators were given a reserve price of $1.24 per MHz for the 2,100 MHz band, against the global average of $0.22, as adjusted to population, purchasing power parity and duration of licence. In 2013, it went up further to $2.7 per MHz – again the highest among the auctions during that time globally. Against this, the per MHz rate was $0.54 for Canada, $0.47 for Thailand, $0.19 for South Korea, $0.8 for Germany and $0.03 for Malaysia. Yet, in some countries like Germany, the spectrum costs were seen as unsustainable even at that price.

Rajan Mathews, director general of COAI, a representative body for telecom services industry, says: "As can be seen from the comparable cost of spectrum, operators in India pay nearly 70 times the cost of spectrum in other countries." Yet, at the same time, the average revenue per user is significantly lower in India than those of other countries. This means, the pay-back takes longer. The return on investment is smaller – compounded by high prices for network equipment as well in India.The average revenue per user in some countries, as compiled by Merrill Lynch Global Research, is also worth looking at: $2.76 for India, $18.35 for Germany, $26.61 for the United Kingdom and as high as $33.81 for the Netherlands.

"Clearly, mobile operators in India have to pay far more for spectrum even though the average revenue per user is significantly lower relative to other countries, making the investments unattractive," said Sandeep Karanwal, India head for GSMA, a body for 800 operators globally."The Indian government should consider the impact that high spectrum reserve price will have on overall consumer value creation, private sector investment and job creation – all of these will ultimately lead to economic growth and additional tax revenues," Karanwal told IANS.

Since 2010, when the new round of auctions started and up to 2014, the government put up spectrum in the 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz and 2,300 MHz bands for bidding. It managed to sell 1,635.47 MHz of spectrum across these bands and raise around $30 billion. In the latest tranch of auction, that concluded Wednesday, it put up 103.75 MHz in 800 MHz band, 177.8 MHz in 900 MHz band, 99.2 MHz in 1,800 MHz band and 85 MHz in 2,100 MHz band. The highest bids for each block collectively amounted to around $18 billion.

Former telecom minister Kapil Sibal even gave IANS the reason why his government did not see auctions as a viable option. "Our telecom sector is hugely in debt to the extent of Rs 3,40,000 crore ($56 billion). Now, paying for high spectrum prices will leave no money for investment."Looking forward, analysts see a consolidation with innovative ways to share spectrum. "Let the norms be set," said Arpita P. Agarwal, head for telecom with PricewaterhouseCoopers. "With this auction completion, the government should bring back focus to and provide a roadmap on pending issues of spectrum trading, sharing, guidelines on mergers and acquisitions."