Mobile tariffs will rise

The conclusion of the spectrum auction, at price points much higher than the sector’s expectations, has not taken the industry by surprise. However, the sector’s future is veiled behind a mist of uncertainties, while the immediate impact would be a rise in tariffs.

“Looking at the initial numbers, the total bid amount seems to be very high. Going forward, this would have an impact on the operators’ margins, and obviously this would lead to an increase in the telecom companies’ debts,” Rajan S. Mathews, Director-General at GSM operators’ body Cellular Operators’ Association of India (COAI). The immediate impact would be a rise in telecom tariffs, as operators would have to pass the cost to subscribers. According to a senior official with a public sector bank, tariffs would rise by 20-25 per cent and gestation period up to 30 years from present 15 years. “It is ironic that this comes at a time when operators are trying to provide services beyond the traditional ones. The high prices would lead to cash flow issues that would impact many initiatives…,” said Kamlesh Bhatia, research director at Gartner.

Operators would be constrained in offering innovative services, improve coverage, rural rollouts of voice, internet and broadband due to difficulty in funding funds after footing the high-cost spectrum bill, Bhatia added.

Funding crunch The cash flows of telecom companies are not sufficient enough, and so they will have to raise funds. For companies such as Bharti Airtel, Idea Cellular, Vodafone India and Reliance Jiocomm, funding would not be much of an issue (depending on the bids), Ankita Somani, IT and telecom analyst with Angel Broking, said.

The telecom companies may have to predominantly rely on their own resources or overseas funding to stump up funds and guarantees for spectrum as ‘once bitten, twice shy’ banks are wary of supporting them. This is due to bitter experience of 2008 auctions, which were embroiled in controversies.

“What is the use of taking spectrum as collateral if there may not be many takers for telecom services due to the high tariffs? We may find ourselves in a situation where we are left holding the bag,” the PSU bank official said, adding operators may resort to external commercial borrowings.

As on December 27, 2013, banks’ collectively had an exposure of Rs 85,900 crore to the telecom sector against Rs 93,100 crore as of December 28, 2012.