Global Experience has Lessons on High Spectrum Cost

By: Gizbot Bureau

India's latest auction of spectrum for telecom operators attracted among the highest bids by global standards at $18 billion. But for an industry in heavy debt and low in revenue per subscriber, the question: Are auctions in the interests of customers and industry?

The latest auction fetched the exchequer somewhat more than the previous amount of $17.7 billion raised in 2010 when e-auctions in the present form began in India. Even at that time, the bid price was high, maintain PricewatehouseCoopers and the Cellular Operators Association of India.

Global Experience has Lessons on High Spectrum Cost

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In the 2010 auction, Indian telecom operators were given a reserve price of $1.24 per MHz for the 2,100 MHz band, against the global average of $0.22, as adjusted to population, purchasing power parity and duration of licence.

In 2013, it went up further to $2.7 per MHz -- again the highest among the auctions during that time globally.

Against this, the per MHz rate was $0.54 for Canada, $0.47 for Thailand, $0.19 for South Korea, $0.8 for Germany and $0.03 for Malaysia. Yet, in some countries like Germany, the spectrum costs were seen as unsustainable even at that price.

"In Europe, it was a multi-country spectrum auction that took place earlier. The telcos had bid aggressively. They thought 3G will be the next big thing -- a money spinner," Jaideep Ghosh, partner, KPMG Advisory Services, told IANS, adding it had a telling effect on financials.

Rajan Mathews, director general of COAI, a representative body for telecom services industry, offered a similar perspective. "As can be seen from the comparable cost of spectrum, operators in India pay nearly 70 times the cost of spectrum in other countries," Mathews told IANS.

"Yet, at the same time, the average revenue per user is significantly lower in India than those of other countries. This means, the pay-back takes longer. The return on investment is smaller -- compounded by high prices for network equipment as well in India."

The average revenue per user in some countries, as compiled by Merrill Lynch Global Research, is also worth looking at: $2.76 for India, $18.35 for Germany, $26.61 for the United Kingdom and as high as $33.81 for the Netherlands.

"Clearly, mobile operators in India have to pay far more for spectrum even though the average revenue per user is significantly lower relative to other countries, making the investments unattractive," said Sandeep Karanwal, India head for GSMA, a body for 800 operators globally.

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"The Indian government should consider the impact that high spectrum reserve price will have on overall consumer value creation, private sector investment and job creation -- all of these will ultimately lead to economic growth and additional tax revenues," Karanwal told IANS.

For the record, India was among the first countries to hold auctions for awarding spectrum under the 1991 telecom policy. But till 2003, the auction of airwaves was bundled with the licence fee. Also, operators had to keep the businesses of offering basic and mobile telephony separate.

From 2003-2006, the licence was de-linked from spectrum and operators were allowed to offer both mobile and fixed-line services under unified access service. As more operators were added, they were given what was called start-up spectrum, indexed to the past charges for airwaves.

Since 2010, when the new round of auctions started and up to 2014, the government put-up spectrum in the 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz and 2,300 MHz bands for bidding. It managed to sell 1,635.47 MHz of spectrum across these bands and raise around $30 billion.

In the latest tranch of auction, that concluded Wednesday, it put up 103.75 MHz in 800 MHz band, 177.8 MHz in 900 MHz band, 99.2 MHz in 1,800 MHz band and 85 MHz in 2,100 MHz band. The highest bids for each block collectively amounted to around $18 billion.

Former telecom minister Kapil Sibal even gave IANS the reason why his government did not see auctions as a viable option. "Our telecom sector is hugely in debt to the extent of Rs.340,000 crore ($56 billion). Now, paying for high spectrum prices will leave no money for investment."

Looking forward, analysts see a consolidation with innovative ways to share spectrum.

Global consultancy Capgemini said in its latest report that the US was entering a consolidation phase, while Europe was engaged in a series of mergers. As many as 79 deals, worth some $230 billion, had already been announced till July last year, globally -- $100 billion in Europe.

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"In developing markets, regulatory uncertainty and strong competition are driving average revenue per subscriber to unsustainably low levels and, thus, preventing large global telecom operators from entering such markets," said the consultancy.

"But in countries like India, revised merger and acquisition guidelines and spectrum policies is likely to spur consolidation in the telecom market that has more than 15 operators currently," the group, which is also a major player in technology and outsourcing space, added.

In Europe, in comparison, even though a service area has just around three-five operators, the industry there is still in a consolidation mode.

"Let the norms be set," said Arpita P. Agarwal, head for telecom with PricewaterhouseCoopers. "With this auction completion, the government should bring back focus to and provide a roadmap on pending issues of spectrum trading, sharing, guidelines on mergers and acquisitions."

Source: IANS

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