Spectrum price: Industry says call rates to go up by 30p/min

Spectrum price: Industry says call rates to go up by 30p/min New Delhi: Disappointed with Cabinet decision on fixing minimum or base price at Rs 14,000 crore for spectrum, the telecom industry Friday said the recommendations will prove to be "regressive" for the sector's growth and that operators would be forced to raise tariffs for consumers.

GSM operators body COAI, which counts Bharti Airtel, Vodafone and Idea Cellular among its members, said the move will impact tariffs by 30 paise per minute on an average.

"It will continue to have an impact on the tariffs to the extent of about 30 paisa per minute. The effect on finances is that an amount of Rs 3,20,000 crore of additional debt that will have to be laid on the industry," COAI said.

Also, the banking industry itself has said that it would be near impossible to continue to fund this type of a demand for investment funds, he added.

"So the only thing that this is going to balance is perhaps the budget of the country if at all even that. So we really don't see any benefit that this decision does to the industry," Mathews said.

CDMA operators body AUSPI agreed. "It (reserve price) is still very high. It will definitely affect the tariffs," Association Of Unified Telecom Providers Of India Secretary General SC Khanna said.

KPMG Executive Director Jaideep Ghosh also said the pricing is on the higher side and that tariffs for consumers, which have gone up recently, would continue to "firm up".

The Cabinet, headed by Prime Minister Manmohan Singh, has decided to fix the reserve price at Rs 14,000 crore for 5 Mhz of airwaves as against around Rs 18,000 crore recommended by sectoral regulator Trai for spectrum auction.

The Supreme Court had, in February this year, cancelled 122 licences issued by the then Telecom Minister A Raja in 2008 and asked the government to conduct fresh auctions by August 31.

But this deadline may not be met and the government may approach the apex court for extension of the timeline. The auction is crucial for companies like Uninor and Sistema Shyam Teleservices, who have time till September 7 to offer their services after which they will be forced to close down their operations in case they fail to get a licence.

Mathews was of the view that the high price could impact the interest of players in the auction.

"Players would be extremely selective of the circles they participate in and we may not see any pan-India operator coming up," he added.

The telecom industry had been pitching for a 80 percent cut in the reserve price suggested by Trai which they felt would lead to up to 100 percent hike in mobile telephone charges.

Industry analysts are also of the view that the pricing could impact the growth of the sector.

Ernst & Young Global Partner member firm Prashant Singhal said the policy is likely to create unnecessary barriers for new entrants aiming to bid for startup spectrum, hence hampering competition.

"The revised pricing would also impact incumbents who are already reeling under the pressure of declining margins and rock bottom ARPUs. Additional pressure on operators would result in unsustainable business operations," he added.

India is the second largest telecom market in the world with over 965 million users as of June 30, 2012.

Till a few months back, the industry was adding 12-15 million new subscribers a month. The growth has, however, slowed down and the industry, which is already facing regulatory challenges, is now adding 4-5 million new users a month.

"The revised spectrum pricing indicated by the regulator would be a big dent on cash flows and would also be reflected in the long-term valuations of the industry. Any additional burden on the operators would ultimately lead to the natural death of telcos in India and de-growth of the industry," Singhal said.

The Cabinet has also approved levy of annual spectrum usage charge of 3 to 8 percent on different slabs of revenue.

"Keeping the slab rate system on levying of spectrum usage charge is a good decision," Khanna said.

PTI