NEW DELHI: While the government must surely be pleased with its haul of over Rs 52,000 crore — till Thursday evening — from the ongoing spectrum auctions, for telcos it might just turn out to be a ‘winner’s curse’ given the aggressive bidding.
In the 900MHz band, for instance, where a total of 46 MHz is up for grabs in Delhi, Mumbai and Kolkata, the bid price of Rs 21,935 crore is higher by a whopping 71.9% over the reserve price. And given the telcom industry’s total adjusted AGR is all of Rs 140,000 crore, an outflow of Rs 52,000 crore will surely pinch. What must be worrying telcos is that as more licences expire starting 2016-17, the government will be reluctant to reduce the reserve price.
For perspective, the government earned Rs 67,000 crore from the 3G auctions in mid-2010; while the bidding lasted for more than a month, Rs 52,000 crore was earned in just four days. This time around, there has been little action in the 1800 MHz band where 385 MHz of spectrum is on sale, and the total bid price at R30,729 crore is up 6.5% over the reserve price. But the 900 MHz space has seen a price war that could be unsettling for some players. The bid price for 16 MHz in the Mumbai circle of R9,009 crore, for example, is higher than the industry’s total adjusted gross revenue of R5,636crore for the circle. It’s not too different in Delhi where the bid price stood at R10,228 crore compared with the industry’s AGR of R6,637crore.
Rahul Khullar, chairman, Telecom Regulatory Authority of India, stops short of calling the bids in the 900 MHz band a winner’s curse, saying prices in the 900 MHz band have cooled now and that attention has shifted to the 1800 MHz band. “This is a good sign because people are looking at a viable option to the 900 MHz band,” Khullar said.
Khullar disagrees that industry has overbid in the 900 MHz space as it did for 2.1 GHz in 2010. “Valuation depends on individual perspective. The cost has to be seen over a 20-year horizon as the licence is being renewed for that period and going by that it is not very high,” the Trai chairman said.
Sanjay Kapoor, former CEO of India and South Asia, Bharti Airtel, however believes any price paid beyond a point becomes a winner’s curse. “The amount that companies spend retaining the 900 MHz spectrum in these cirlces will only help protect their revenues, their top line will not get enhanced; so they are bound to bleed,” Kapoor told FE pointing out that the auctions for 900 MHz are similar to that of 2.1 GHz in 2010 where there was limited supply. “There’s limited supply and the incumbents have no option but to protect their turf,” he said. Kapoor believes the timing of the cash outflow from companies is unfortunate since tariffs are just beginning to stabilise.
Rajan Mathews, DG, Cellular Operators Association of India (COAI) wants the government to pare some levies, chiefly the spectrum usage charge and the 5% contribution of AGR to the universal service obligation fund. “The government is getting more than it had budgeted for now that its revenues have been protected, it should look afresh at reducing the SUC and our contribution towards USOF,” Mathews said.
A Credit Suisse report also expressed concerns on the industry’s health as a result of high bids in the 900 MHz. “The ongoing 900/1,800 spectrum auctions are turning out to be a runaway success for the government…While this is good news for the government, it is the opposite for the industry. Irrespective of the mode of payment (upfront or deferred), the $8.3 billion figure should be treated as debt (either from the banks or from the government). This will materially impact the industry at a time when the overall industry revenues is only $18.5 billion annual (AGR basis),” it said. It said that the returns for the industry – which had shown signs of improvement over the last few quarters on tariff upgrades, could now go down again.
Hemant Joshi, partner, Deloitte Haskins & Sells pointed out that balance sheets of many operators were stretched due to loans taken to pay for 3G spectrum. “Even if 2G radiowaves are paid for in a phased manner, there is a cost. That means the cost of retaining spectrum is going to he high, but there is no other option,” Joshi said.
(Source: The Financial Express, February 7, 2014)