Industry Insight TELECOM

In February 2012, the Supreme Court cancelled all 122 2G telecom licences alloted on or after January 2008. Foreign investor sentiment was adversely impacted, with atleast two major foreign operators arguing that they had been unfairly penalaised although they had not indulged in any wrongdoing. While some operators choose to reobtain spectrum at much higher prices, others such as Etisalat and S-Tel has chosrn to exit, as they have found continuing operations unviable in the current environment.

In May 2012, the government unveiled the new telecom policy (NTP) that is broadly positive for the industry.

The NTP proposed-

• Delinking future licence issuance from allocation of spectrum, as well as allowing spectrum pooling and sharing.
• Remove Roaming charges and create a one nation one licence regime across service areas.
  This will impact operator revenues as the move will eliminate earnings from roaming and STD charges.
• The Government also stated its intent to go for spectrum refarming.
  It could lead to a significant downside, as the reallotment of spectrum in a higher frequency band will imply higher capital investment to maintain current service levels.
• Announcements on one time for existing spectrum would further strain operator cash flows.

3G Roaming Agreements

At present, there is a dispute on roaming arrangements between the government and three leading operators on offering 3g services in areas where they do not hold 3g Spectrum in their individual capacity. The matter is now being heard in the courts of law.

Tepid Response to 2G Auction

Following the cancellation of licences as per the Supreme Court order, the governement conducted a round of the 2G spectrum option in 1800 MHz in November 2012.
Owing to the high reserve prices, the response was tepid with less than half of the spectrum blocks up for grabs finding takers, with all the acquired spectrum blocks, being at the resrve price.

The muted response forced the government to rethink its initial reserve prices, for circles in which bidders envinced no interest(Delhi, Mumbai, Karnantaka, and Rajasthan). The EGoM recently proposed that the reserve price for the next 2G auction in these four circles should be 30% lower than the price decided for the November 2012 auction. The EGoM also recommended a reduction of upto 50% in the reserve price of CDMA airwaves.

It was also announced that a spectrum auction in both 900MHz and 1800MHz (GSM) would be conducted for all Circles in March 2013, followed by auction in 800MHz (CDMA).

Net subscriber additions have reduced with some of the operators shutting/ scaling down operations and existing operators cleaning up their subscriber base.

Reason for Rising Tariffs-

• Pricing pressure on operators has also reduced and in few circles where operators have a strong market positon, they are in the process of increasing tarrifs gradually.

• Operators whose licences were cancelled and choose to reacquire spectrum at high prices under the fresh auctions would not be able to offer services at extremely low tariffs, consequently reducing any possibilty of pressure on rates.

As a consequence, ARPU(Average Revenue Per User) is expected to increase in 2012-13, compared to 2011-12. RPMs (realisation per minute) which have been declining for the last few years, are expected to stabilise at current levels and increase steadily thereafter.


Courtesy: THE HINDU