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COAI: Cabinet Decision On Spectrum Pricing Will Affect Consumer Tariffs And Severely Dent Industry’s Future
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Monday, August 06, 2012:
The Cellular Operators Association of India (COAI) stated that the Cabinet’s decision of fixing the reserve price for re-auction of 2G spectrum at INR 14000 crore/5MHz will impact tariffs to the tune of 37-49 paise per minute. Further, the total industry debt will rise to anywhere between INR 3.7 lakh - 5.4 lakh crores as per the two separate scenarios provided by TRAI. COAI termed the Cabinet’s decision as against consumer interest and would have severe repercussions on the future viability of the industry.
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The reserve price for India is way above the international reserve price per MHz per population. The reserve price per MHz per population in India (on purchasing power parity basis) of INR 19.68 is enormously high as compared to INR 1.06 that Ofcom (the telecom regulator of the United Kingdom) has recently announced for auction of 1800 MHz band. Similarly, for the 800 MHZ band, Ofcom has announced a reserve price that works out to INR 3.18 per MHz per population while that of India stands at INR 25.58 per MHz per population. Hence, it occurs that the Indian operator will have to shell out 1700% more than the UK operator for the same amount of spectrum in the 1800 MHz band and 700% more in the 800 MHz band.
The Cabinet has not given due consideration to the fundamental issue of unsustainable high reserve prices which will significantly increase costs, thereby invariably increasing the tariffs. COAI, in association with PwC, studied the impact of Cabinet’s decision as per the different track models that were considered by TRAI in its recommendations and concluded that:
Tariff:
Track I - The per minute tariff impact would be 49 paise, assuming that all existing spectrum allocations would be re-priced at reserve/auction price for a 10 year tenure at the time of license extension
Track II - The tariff impact would be to the tune of 37 paise, assuming that all existing spectrum allocations would be re-priced at reserve/auction price in the year 2012-13 for a 20 year tenure
Industry Debt:
· Track I - The total industry debt would increase to 3.7 lakh crores by 2016-17
· Track II - The total industry debt would increase to 5.4 lakh crores by 2016-17
No mention is made as to how the industry that is already highly leveraged and under a debt burden of INR 2 lakh crores will fund the high outflow on account of auction of 2G spectrum, especially in the wake of the banking sector’s unwillingness to take on more exposure to the industry.
COAI also reiterates that continuing the slab-wise system for Spectrum Usage Charge is unfair and will lead to continuation of the non-level playing field within the industry; as the dual spectrum operators are paying separate spectrum charges for 800 MHz and 1800 MHz; thereby enjoying a lower charge and causing significant losses to the exchequer. Internationally practices maintain that where spectrum has been allocated through the auction process, SUC is fixed at a nominal rate not exceeding 1% to recover the administrative costs associated with managing spectrum.
The Cabinet’s decision will severely affect the sustainability of the sector and further add to the investment drought that the sector is witnessing of late. The increased tariff will also defeat the Government’s objective of offering affordable communication services to the people. The increased tariff will add to the woes of Indian subscribers who are already weathering the high rates of inflation!!
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