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High Bids Will Not Bleed Industry: Khullar

High Bids Will Not Bleed Industry: Khullar

TELENEW DELHI: The telecom regulator played down concerns that aggressive bidding for spectrum in the 900 Mhz band in the ongoing auctions will set the industry back the way it did after the 2010 auctions, saying the sector’s financial health has improved and a price war in the future is unlikely.


Speaking to ET, Rahul Khullar, chairman of the Telecom Regulatory Authority of India (Trai), also slammed the government’s move to levy a higher spectrum usage charge than what was suggested by the regulator, saying the decision “is not far sighted”.


Khullar’s comments come amid a hotly contested bandwidth sale process which saw bid levels on the second day for airwaves in the 900 Mhz band for Mumbai rise 68.3% over the base price, 46.8% over the starting price for Kolkata and 47.4% for Delhi. This led to fears that the industry scenario post the 2010 3G and broadband wireless spectrum auctions could be revisited.


Back then, the operators raised huge debt to pay for the expensive 3G and BWA bandwidth which is haunting them to this day in the form of high interest costs. A Goldman Sachs note to clients after day 1 of these auctions said the companies that will eventually get the airwaves could end up with a “winner’s curse”.


Khullar, however, disagreed, saying: “It won’t set the industry back. Their finances have started improving.” He said that since late 2012, operators have lowered or removed discounted calls which have translated into higher average revenue per user and the average realised rates – up by about four to paisa a minute – improving profitability.


In a bid to shore up their finances, some operators have also sold assets which aren’t core to their business while some have raised funding via bond offers, he added. Bharti Airtel, the world’s fourth-largest mobile phone company, recently raised E1 billion from European investors to refinance its debt.


The Trai chairman said the sale in fact has played out the way the regulator expected. “I think the important thing in any auction is to set a reserve price which leads to price discovery. I think we set fair and reasonable reserve prices,” Khullar said, adding “We stand vindicated”. Speaking while the second day of the bandwidth sale was on, Khullar said he expected the excess demand for Mumbai in the 900 Mhz band to push up the prices in the circle “a little more” but the Kolkata and Delhi circles are “close to closure”.


“It will go a little higher, but not through the roof – neither in Kolkata nor in Delhi. Once that gets sorted out and you know who the winners are in 900 Mhz, then you will see the 1800 Mhz auction pick up steam.”


The auction data at the end of day 2 for 1800 Mhz suggested excess demand for a few circles like UP-West and Gujarat, but nothing close to the aggression for 900 Mhz airwaves. Overall, the government is set to rake in at least 45,000 crore from the sale, according to data at the end of the second day of auctions.


Khullar also allayed fears that the entry of cash-rich Reliance Jio Infocomm in the voice segment after the ongoing auctions would start another tariff war, saying incumbent operators are now wiser after having being hit very hard by the previous rate wars.


“I don’t think any tariff wars are going to break out, quite simply because the industry has very badly burnt its fingers by it,” he said. “When the thinking of these companies was customer acquisition and market share at any cost, price as a variable was your only instrument. Then it was a race to the bottom. Nobody consciously is going to do that.” The lead-up to the auctions had been tumultuous, with sharp differences between Trai and the telecom department (DoT) on issues of bandwidth pricing, spectrum usage charge (SUC) and on pricing for the 800 Mhz band.


The government eventually rejected the proposals of the regulator on all three issues, setting higher floor prices and SUC and forcing Trai to come up with its recommendations on 800 Mhz pricing, much against its wishes.


Khullar slammed New Delhi’s move to levy an SUC of 5% of the annual gross revenue on all new airwaves acquired in the current sale, as also a weighted average regime to charge existing operators for old and new airwaves.


“The SUC decision is not far-sighted,” Khullar said. “What are we doing in an auction? We are selling the right to use spectrum. If you have already paid for the right to use spectrum, why do you need a spectrum usage charge?”


He said, however, that the fiscal needs of the country are “so compelling at this point of time that any drastic reduction in SUC is not possible”. Still, “if you have to levy the charge, peg it as low as possible,” he said. Trai had suggested SUC at a flat 3% for auctioned bandwidth. Operators have been paying between 3% and 8% of annual revenue as a charge to use the bandwidth annually.


Analysts say SUC is an important non-tax revenue generator for the government which has been struggling to keep its budget deficit in check, especially in an election year where it needs the fiscal space to spend on populist schemes.

(Source: The Economic Times, February 5, 2014)


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