Soaring spectrum bid price may be good news for the Government but not the mobile user. Telecom companies and analysts reckon that the days of cheap mobile telephony are over and tariffs could rise by up to 20 per cent in the coming months as spectrum price rises.
As the airwaves auction moves into the seventh day on Monday, telecom companies have put on the table over ₹56,000 crore for buying spectrum in the 1800 MHz and 900 MHz band. Though this is still short of ₹70,000 crore they coughed up in 2010 for 3G spectrum, analysts say that mobile operators have been pushed to a situation where they have to buy spectrum at any price and will very likely raise tariffs to recover the cost.
“This auction is a disaster for the industry and the consumers. The operators will take a long time to recover the cost and they will do it by jacking up tariffs,” said GV Giri, Telecom Analyst at India Infoline.
Airtel and Vodafone are incumbent players that own spectrum in the 900 MHz band at present but this expires in November. Therefore, the only option for these players is to buy back spectrum through the auction. The other option is to settle for the 1800 MHz band but that could also be an expensive proposition given that it is an inefficient band compared to the 900 MHz band.
“This auction is not throwing up market determined price. We are bidding because we are left with no option. Either we buy spectrum even at a higher price or we go out of operation,” said one of the bidders, who declined to be named as the auction is still in progress.
Going by the 3G experience, it will take a while before consumers can hope to get cheaper data services. Though voice calls in India are among the cheapest in the world due to the earlier policy of giving spectrum administratively, data service is still expensive. According to research by the International Telecommunication Union, the average phone plan with 500MB of data costs $10 a month in India compared to less than $5 in some European countries. IIFL’s Giri said the auction could have been better designed to keep the price at realistic levels. “The government should have made more spectrum available in other spectrum bands so that operators have the option to pick up airwaves if they lose out on 900 MHz. Right now it’s desperation that’s driving the price,” he said.
There is also no roadmap for availability of future spectrum. Idea Cellular, for example, has to give up all its 900 MHz spectrum next year.
These circles account for 80 per cent of its revenues. So, Idea has no option but to bid for the 1800 MHz band so as to secure itself for the eventuality that it may not win the 900 MHz band in the auction next year.
Challenge “It’s going to be a challenge for the industry to make ends meet. Fulfilment of NTP 2012 objectives, such as broadband for all, Internet connectivity, rural penetration, affordability, is now under question,” said Rajan Mathews, Director-General, Cellular Operators Association of India, adding that the Government should perhaps look at reducing the spectrum usage charge to a flat one per cent and elimination of USO fund fee of 5 per cent to help telcos.