Companies & Sectors
'Global experience has lessons on high spectrum cost'
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.
 
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.
 
"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.
 
"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."

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COMMENTS

K. M. Rao

2 years ago

"Are auctions in the interests of customers and industry?" It is blasphemous to raise this question at this stage even after establishing beyond any scope for doubt the huge loss suffered by the country by the benign UPA govt. Is not auction similar to bidding to bag a contract? It is clear in whose interest the consultants are working.

Jackie Chan to return to India to film 'Kungfu Yoga'
Asian cinematic icon Jackie Chan, whose latest actioner "Dragon Blade" hits Indian screens on Friday, says he may come down to the country to shoot his new film "Kungfu Yoga", the first project under a India-China co-production agreement signed during President Xi Jinping's visit here last September.
 
When Chan last visited India in 2013, he spoke to this IANS correspondent about the need for encouraging movie collaborations and cultural exchange between the two countries.
 
Is he pioneering something in that direction?
 
"Yes, I am planning to start a new movie called 'Kungfu Yoga'. That means I will be returning to film in India. Perhaps next time you will interview me on a set," Chan, who will turn 61 next month, told IANS in an email interview from Beijing.
 
The star of movies like "Police Story", "Rush Hour" and "The Myth", Chan will be seen in a prominent role in "Kungfu Yoga".
 
From the film's title, one believes it will be a perfect amalgamation of Chinese martial art Kungfu, and the art of Yoga, which originated in ancient India and now thrives around the world.
 
Chan's earlier India collaboration has been with Bollywood beauty Mallika Sherawat in his 2005 film "The Myth". But will his association with the Indian entertainment industry include a Bollywood film?
 
"I don't think about it in terms of doing a Bollywood movie, or even a Hollywood movie. The most important thing is the script. But, yes, I'm planning the new movie called 'Kungfu Yoga'. Hopefully, we will start filming in the autumn," he added.
 
Meanwhile, the actor, who has regaled legions of his fans across the globe with his comedic and action avatars, hopes his American-Chinese collaboration "Dragon Blade", directed by Daniel Lee, appeals to Indian audiences with its story.
 
"The myth about ancient Romans lost in China is absolutely intriguing...Also, I designed the fight sequences myself and I think the audiences will love them. Last of all, the songs and music in the movie are something I'm very proud of," he said.
 
In "Dragon Blade", releasing here in English, Hindi, Tamil and Telugu, Chan has worked with Hollywood actors John Cusack and Adrian Brody. The experience, he says, was "great".
 
"I enjoyed working with them and I look forward to working with more Hollywood stars in China. For many years, I acted in Hollywood films. It's exciting now that Hollywood stars are acting in Chinese films," said the actor, who defies age with his enthusiasm, passion and ability to perform daredevilry without a thought.
 
What keeps him going?
 
"Enjoy every moment of your life. Accept your own self. Be young at heart. I still go to the gym every day and run for an hour. But I never go on a diet. I believe in being 'Happy go Lucky'! That's my secret," said the action star, who worked with more than 800 extras, over 350 crew members and hundreds of horses for "Dragon Blade".
 
As a sexagenarian, is he choosing his roles more carefully?
 
"Of course, I am now 61. I would like audiences to think of me as a dramatic actor who happens to also do action. In my recent films, I've been trying to broaden my roles, including in "Dragon Blade"."
 

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'Steep spectrum bids will burden telecom players, test tariffs'
As e-auction of telecom spectrum concluded on Wednesday, analysts said the winners faced a piquant situation now as their steep bids will burden their financial state further with limited elbow room to pass it on to customers in the form of tariff hikes.
 
The auction concluded after 19 days and 115 rounds of rigorous bidding with total commitments at Rs.109,874 crore as per provisional figures released by the government. As many as 50 out of 69 service areas on offer went at a premium.
 
"The whole auction was designed by the government to extract maximum revenues from the operators. As a result, the industry is going to face financial needs," Rajan S. Mathews, director general of the Cellular Operators' Association of India, told IANS.
 
Pointing to a key financial indicator, analysts quoted GSM Association's research wing to point out that in India bids were at global levels, but the average revenue per user was already low for Indian operators at $2.55, against $17.65 for Germany, $29.30 for the Netherlands and $28.52 for the UK.
 
"The spectrum auction outgo will impact on the rollout and quality of telecom network. In this competitive environment, operators will find it difficult to raise data or voice tariffs in the immediate term," said Arpita P. Agarwal, head for telecom with PriceWaterhouseCoopers.
 
Former telecom minister Kapil Sibal also felt the auction process was flawed.
 
"The telecom sector is hugely in debt to the extent of Rs.3.4 lakh crore. Now, in paying for high spectrum prices, there'll be no money for investment in infrastructure," Sibal told IANS.
 
Analysts said unless the revenue stream for the operators increases sharply, there will be little scope for the players to justify the high bids they have made. But in a regulated tariff regime, they also felt the scope for tariff hikes was limited.
 
"Prices are within the ballpark region. Price is not a surprise. However, the amount of bidding in the 800 MHz for 4G was not expected. It happened most of the operators are now planning to be a 3G and 4G player," Mahesh Uppal, director of telecom consultancy firm Com First, told IANS.
 
Uppal, however, cautioned that prices at which the winners got the spectrum were very very high. "It means less money to spend on the growth of network," he added.
 
Analysts also felt the impact on basic mobile phone services, classified as second generation (2G) telephony, will be impacted the most, as bidding was most competitive in the 900 MHz band - also since some players have to vacate the spectrum in December after the expiry of the licence.
 
"We participated in the recent spectrum auction to ensure continuity of business and service to our customers. We remain committed to providing seamless connectivity and superior communication services to our customers across the country," Vodafone said in a statement.
 
But experts saw more auctions in the near future as the current round focused on eight bidders.
 
"There was strong focus on 2G spectrum in this auction by all bidders. Looking at the current low demand for 2,100 MHz band, there may be another auction for 2100 MHz band soon with more spectrum and revised reserve price," Rishi Tejpal, principal research analyst, Gartner, told IANS.
 
But is a consolidation on the cards?
 
The opinion on this is: "Let the norms be set, at least," as PwC's Agarwal said. "With this auction completion, the government should bring back focus and provide roadmap on pending issues of spectrum trading, sharing, guidelines on mergers and acquisitions."

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