With over Rs.1 lakh crore set to flow into its kitty, much more than what was initially expected, the government must be very pleased with the ongoing spectrum auctions.
Mobile subscribers, however, may now have something to worry about. For, telecom companies may be forced to raise tariffs to recoup the money they shelled out in paying top dollar for the airwaves.
By how much will their monthly bill increase? That is the key question now, especially after India’s No. 1 mobile services company Bharti Airtel and the industry body Cellular Operators Association of India have indicated in the last few days that tariffs will eventually go up.
In a note prior to the auctions, ratings firm Crisil had said, “Telcos (short for telecom companies) face a herculean task of cranking up their blended average voice and data revenue per minute (ARPM) by 5 paise to generate additional cash flows needed to service incremental debt.” That was on the basis of the estimate that telecom operators would shell out over Rs.90,000 crore for the airwaves. That figure is now over Rs.1 lakh crore.
ARPM is based upon total net revenue divided by the number of minutes of traffic over a network for the applicable period. ARPM is a key telecommunications industry financial measurement.
Already, over the last year-and-a-half, the ARPM of mobile companies has increased by around 2-3 paise, thanks to, as the report said, “a booming data business and selective tariff hikes.” However, a 5-paise tariff raise won’t be that easy in the face of intensifying competition, it said. Enhancing the customer base is equally difficult for the same reason.
With revenues from voice calls maturing, the bet is on data services. In India, 95 per cent of users rely on mobiles for telephone calls and Internet. Data revenues per user have almost doubled in the last one year for GSM (global system for mobile communications) service providers.
Standard & Poor's credit analyst Abhishek Dangra explained how this could play out. In a note, he said, “We expect the market to remain highly competitive with larger players leading tariff actions. The larger companies have steadily strengthened their market position over the past two years.” When the government decided to auction a total of 465 MHz of spectrum across four bands (800MHz, 900MHz, 1,800MHz and 2,100MHz) and a validity of 20 years, there were enough indications that it was going to cost telcos a lot of money. One of the reasons was that the government fixed the base price at a 17-36 per cent premium over what the regulator, Telecom Regulatory Authority of India, had suggested. It is already an extremely competitive field with the likes of Bharti Airtel, Vodafone India, Idea Cellular, Reliance Communications, Tata Teleservices, Uninor and Aircel. With Reliance Jio joining the fray, the competition has become fierce. Its earnest money deposit was the highest amongst all other players. A higher earnest money deposit allows a player to bid across more circles.
Also, it should be remembered that India is the No. 2 market for smartphones. Plus, the airwaves up for auction serve areas that account for almost half of the $19 billion in combined revenue for the four largest operators.
It accounts for 72 per cent of Idea’s revenue, 47 per cent of Vodafone and 35 per cent of Bharti’s revenue. The loss of spectrum for an existing player would mean possible closure or reduced operations, which would lead to write-off the capital expenditure as well as loss of operating income. So, one can understand the desperation in companies putting in aggressive bids.
The biggest battle has been for the 900MHz band, which can be used for both 2G and 3G, as signals can travel further and provide better indoor coverage than other frequencies. Almost 40 per cent of the spectrum for sale is in this band.
A report by India Ratings said this band, due to its inherent advantages, provides higher data rates and cuts costs by up to 50-70 per cent for both capital expenditure and operational expenditure.
Before the news on tariffs, one has to wait for a Supreme Court ruling on the auctions. The apex court has stayed the publication of auction results and the award of spectrum to winners, following a challenge by GSM operators. More details would emerge on the next hearing on March 26.
(This article first appeared in The Hindu dated March 16, 2015)