A bigger monthly phone bill could be around the corner.
India’s telecom majors are expected to bid upto Rs. 100,000 crore buying spectrum which in turn could help provide better quality mobile phone coverage.
The auctions for the spectrum are expected to happen in 2-3 months and upto 75% of the bids are expected from private telecom companies, a just released report from rating agency CRISIL says.
The top three telecom players are expected to account for close to 2/3rds of the bids at the auctions. Interestingly, Indian telecom companies already owe close to Rs. 380,000 crore to banks for loans raised earlier, mostly to buy the same thing – spectrum.
CRISIL Research Director Ajay Srinivasan says telecom companies (as we all know) are already facing increased network congestion in circles with high data consumption, mostly metros and category A circles, which account for 60% of India’s data traffic. “Augmenting network capacity and spectrum holdings will be critical for maintaining their competitive position,” he said.
It’s a race to the top, or bottom, depending on which way you see it.
The big driver for the race is Reliance Jio which is expected to put profitability and operational cash flows of all the companies under pressure. Reliance Jio is expected to launch in full flow this year-end, though the project has suffered delays.
The Telecom Regulatory Authority of India (TRAI) had proposed the auctioning of 35 MHz (mega Hertz) spectrum in the 700 MHz band at a reserve price of Rs. 11,485 crore per MHz in March this year.
The 700 MHz band is used worldwide for deployment of 4G as it is more efficient than other bands allowing it higher penetration capability inside buildings. Due to lower frequency it is also possible for the band to provide wider coverage, which reduces number of towers required for setting up LTE network.
The tender is expected to garner revenues of INR 5.6 trillion (USD82.68 billion) and will see the government auctioning off more than 2,000MHz of spectrum across seven frequencies – including the 700MHz band which will be made available for the first time.
Indian government wants to auction off the 700Mhz spectrum as this band is already in use across the world – in about 40 developed and developing countries.
In the current fiscal, the outgo towards spectrum acquisition would be Rs.370 billion, which is lower than the budgetary estimates of around Rs.560 billion. It will still be a significant outgo for an industry reeling under Rs.4 trillion of debt as of March 2016.
During the hearing against the levying of fine for call drops, senior advocate Kapil Sibal, appearing for telecom operators, told a Supreme Court bench that Indian telecom companies have to pay over Rs 3.8 lakh crores as debt. “We are not gaining anything and our rate of return is less than one percent at the end of a year.”
Crisil’s analysis shows that the large telcos would need external funding of around Rs. 50,000 crore to meet their spectrum and network investments over the next 2 years.