2G pricing will hit telcos' profitability, say analysts

Thomas K Thomas Updated - March 12, 2018 at 12:41 PM.

TRAI doesn't agree, says cost impact will be less than 5 paise a minute

Mr J.S. Sarma, Chairman, TRAI.

Mobile operators, both new and incumbent players, will be hit hard if the recommendations of the telecom regulator on auctioning spectrum are accepted, according to analysts.

“We estimate one-time capital expenditure to be 15-21 per cent and recurring capex plus operational expenditure to be 4-5.5 per cent of annualised revenue assuming that that operators will surrender 900MHz, and go for 1800MHz . Net present value (NPV) loss of top GSM companies would be between Rs 29,000 crore and Rs 33,000 crore,” said Mr G.V. Giri, Telecom Analyst, IIFL.

On Monday, the Telecom Regulatory Authority of India suggested a base price of Rs 3,622 crore per megahertz for the 1800 Mhz band. This is 10 times the price paid by operators in 2008. To compensate for the high pay out, mobile companies may have to increase tariffs by 20-40 per cent, according Mr Giri.

Even new 2G players, looking to buy back spectrum, will be impacted. “Multiple licensees, whose licences were cancelled, were operating with the 4.4MHz spectrum allocated in 2008. A lower spectrum and higher price is likely to impact profitability of new licensees,” said Mr Abhay Moghe of Avendus Securities.

20-year outlook

But the TRAI does not think so. Calculations made by the regulator show the per minute cost impact (including interest) reduces from Re 0.044 per minute in 2012-13 to Re 0.017 per minute in 2031-32.

“It is a fallacy that the base price is astronomically high. Our calculation shows that the impact of auction fees is low. There could be an issue of liquidity for which we have said that operators be allowed to mortgage spectrum and also do spectrum trading for limited purpose,” Mr J.S. Sarma, Chairman, TRAI, told Business Line .

When asked as to why the TRAI has suggested to put only 5 Mhz of 2G spectrum for auction initially, Mr Sarma said that it was the best way to find the value of spectrum.

“The higher base price ensures that we get close to realising a market value. It will also give us the true picture of the actual demand for spectrum,” Mr Sarma said.

But analysts say that telecom companies do not have a 20-year outlook. “All will be challenged to find business cases for investment in spectrum at high prices, given that nobody will have more than a 5-10 year outlook on the industry. Licences may be for 20 years, but as the industry is changing fast, nobody's outlook goes beyond a decade at the maximum,” said Mr Mohammad Chowdhury, Leader Telecom, PwC India.

>tkt@thehindu.co.in

Published on April 24, 2012 16:07