Loot of Indian Telecom Companies by the Narendra Modi government continues....

The Cabinet had recently cleared a mega-spectrum auction plan for seven bands, including that of 700 MHz. However, analysts had expressed concern over the high base price for the premium 700 MHz. A company interested in buying spectrum in 700 Mhz band will need to shell out a minimum of Rs.57,425 crore for a block of 5 Mhz on pan-India basis. This band alone has the potential to fetch bids worth over Rs.4 lakh crore. 

Aggressive bidding for 700 MHz band will hurt the financials of telecom companies which are already reeling under very high level of debt. From where such large sums of money will come? Has the Narendra Modi government ever thought of it, before placing astronomical rates for spectrum? Now what will happen is that after sometime, the telecos will definitely start raising the tariff rates; hurting the common man. What to say ....!! 

Idea management told analysts that it does not see a spectrum supply constraint anymore. Idea sees competition to intensity over two years but expects gains in revenue from increased market share. Another telecom company, Telenor has also decided against participating in the upcoming spectrum sale in India, signalling the Norwegian mobile phone operator's clear intent of exiting a market where it has been making losses and has struggled to expand operations. 

Moreover, The Narendra Modi government has already created a mess of the telecom sector, by putting Ravi Shankar Prasad in charge; who is inefficient in dealing such complex matters as telecom.....But then what is new, Narendra Modi's ministry is all full of stooges; though one of them have been shifted from the Human Resources (Read Education) to Textiles...and Minister of State for Railways Manoj Sinha is being given Telecom portfolio, that's split from Information Technology, a department that will stay with Ravi Shankar Prasad, who is also the country's new law minister after Prime Minister Narendra Modi's massive reshuffle of his cabinet's portfolios.

Even after 14 years, when the dispute first arose, there is still no clarity on what should be included/excluded from telecom ‘revenues’ – and since there is no clarity, whichever way the case is finally decided, where is the question of paying a penalty?

Should a foreign exchange gain/loss a Bharti Airtel makes on its African operations be included in this or not? In the initial years, Vodafone operated in India through eight companies which, on occasion, lent money to one another – is this to be included in telecom ‘revenue’ and should the government be given a share of this? Clearly not, you’d think, but that is what the case is all about.

While the new telecom minister can take a call on the CAG report once a decision is taken on what ‘revenue’ is, the decision has larger ramifications. Not including foreign exchange losses, capital gains, or interest earnings on company deposits in ‘revenue’ is an easy decision. But if payments made to other telcos are included in revenue and the government gets license/spectrum fees on this, this will discourage infrastructure sharing; it will also ensure MVNOs never take off.  In the rush to apportion blame, no one is talking about the real issue.

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.