Telecom Tariffs to Go Up Due to High Cost of Spectrum: Industry Bodies

Mobile tariffs have to go up to meet high cost of spectrum following the aggressive bidding in the just concluded auction that fetched a record Rs. 1.09 lakh crores to the government, industry bodies said today.

The spectrum auction, which came to a close after 19 days of aggressive bidding on Wednesday, helped the government garner commitment of Rs. 1,09,874 crores from operators.

"The auction was designed to extract maximum from telecom operators else why would someone create scarcity of spectrum. Financial and cost structure of industry has been completely altered. Consequently tariff will have to be increased to meet commitment to government," industry body COAI Director General Rajan S Mathews told PTI.

COAI represent all major telecom companies - Airtel, Reliance Jio Infocomm, Vodafone, Idea Cellular, Aircel and Telewings (Uninor) - that participated in the auction.

When asked about few takers for much-hyped 3G spectrum, Mathews said, "Why would anybody bid for 3G at high price. You know that you will be left with option to pay minimum equal to what you pay in this auction for next round."

Former Secretary General of industry body AUSPI, SC Khanna, said, "All big companies, they are debt-ridden. If price of spectrum has gone up, which is the raw material for operators, the only choice they have is to marginally hike tariffs."

He added that this would not have a major impact since "subscribers are now accustomed to these changes like that in case of petrol".

Sanjay Kapoor, former Bharti Airtel CEO, said some telecom operators have increased spectrum in their kitty post closure of the auction.

"The challenging task ahead will be to focus on expanding infrastructure and enhancing customer experience. Customer experience has definitely dipped in the last few months and that has to be looked into," Kapoor, who is the Chairman of Micromax at present, said.

Operators like Airtel and Idea Cellular have a tougher job ahead, he said.

"Idea and Bharti are listed, while Vodafone isn't. So, these two companies are answerable to shareholders here... If Vodafone has spent more than these guys, then Vodafone has clearly garnered more spectrum which means they are creating more capacity. This might lead to a little shift in market share in the future," he said.

The total value of spectrum in four bands of 800MHz, 900MHz, 1800MHz and 2100MHz put for auction at base price stood at around Rs. 82,000 crore.

The spectrum price in many parts of the country has gone up by over two-folds compared to base price fixed by government.

Vodafone India which participated in the auction said "We participated in the recent spectrum auction to ensure continuity of business and service to our customers ... We will make a further announcement once the DoT announces the results of the auction."

Industry experts believe that 70-80 percent of spectrum payment will be made through debt.

"Debt burden for industry would definitely increase by 70 to 80 percent of the spectrum price paid. Balance sheets would get further leveraged and profitability and cash flow would be adversely impacted in servicing of principle and interest and amortisation of spectrum cost," Deloitte Haskins & Sells Partner Hemant Joshi said.

He further said that while economics demand immediate tariff increase, market forces will determine the quantum and timing of the increase.

"Government has won but whether India and industry will win is contingent on how the money collected is used for building telecom infrastructure," Joshi said.