Mobile rates may go up in coming months after spectrum auction

NEW DELHI: Mobile and data tariffs may get dearer in the coming months as a highpitched bidding war among debt-laden telecom operators — expected in the spectrum auctions in February — will force a revision of rates to make up for the fresh investments.

While the auctions will easily fetch over Rs 1 lakh crore for the Modi government, which desperately needs funds to bridge the yawning fiscal deficit gap, the fresh investments will stretch the books of debt-laden mobile companies that are struggling to raise funds from banks and other financial sources.
The auctions — especially for the highly-efficient 900MHz frequency — are crucial for top operators like Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications as some of them are completely losing the coveted spectrum in quite a few key circles and thus will have to buy in this round to maintain continuity of business.

In the 3G, or the 2,100-MHz band, the government is currently selling only one block of 5 MHz spectrum and companies will again make an aggressive bid here as the prices may go up in the next round of auctions where the government will sell an additional three blocks.

“The bids will surely be aggressive, particularly in the 900-MHz band, which is not only crucial for a great and efficient coverage but also for profitability and leadership,“ said Sanjay Kapoor, chairman of Micromax and former CEO of Airtel.

“Not passing on the increased cost to consumers will be difficult.The operators will have to break away from the 1% model and actually pass on the cost to consumers as the raw material (spectrum) is expensive.“

Most of the companies are heavily indebted and are counting on data growth to drive in revenues and profitability. But this requires fresh spectrum and network investments. Some estimates peg the debt in the Indian telecom sector at Rs 2,65,000 crore and this includes Rs 67,000 crore on Airtel, Rs 50,000 crore on Vodafone, Rs 35,400 crore on Reliance Communications and Rs 11,827 crore on Idea.

According to an analysis by Ernst & Young, Idea will lose 900 MHz spectrum in as many as nine circles (includes Andhra Pradesh, Gujarat, Karnataka & Madhya Pradesh); RCOM in seven (includes MP , West Bengal, Bihar and North-East); Vodafone in seven (includes Gujarat, Tamil Nadu, Kerala & Rajasthan) and Airtel in six (includes Andhra Pradesh, Karnataka, Punjab & Rajasthan).

Industry grouping Cellular Operators Association India (COAI) complained that reserve prices are too high and should have been kept lower.

In a letter to telecom minister Ravi Shankar Prasad, COAI director-general Rajan Mathews said that this will have a “major negative impact on the health of the already debtburdened industry besides impacting consumer tariffs, expansion of networks and quality of service.“