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4 things to know about telecom auction
The first round of the auction of the second-generation telecom waves has ended. This marks the end of long wait after the Supreme Court cancelled telecom licenses in its 2012 judgement. The auctions are spread over three different tranches. The first round earned the government a whopping Rs 1.1 lakh crore.
Here are four things to know about:
Companies had two key objectives. Firstly, they had to renew licenses that expired by wining spectrum in the circles. To do so, the telcos had to get at least 5 MHz of spectrum in the 900-MHz band in all their existing circles. Secondly, they also had to gain extra spectrum to enhance data services. Bharti, Vodafone and Idea Cellular were successful in achieving both the objectives. Reliance Communications, though, could not renew its licenses in five out of seven circles. "The company faces the reality of having to shut down its 2G GSM operations in three circles (Assam, Bihar, and West Bengal," according to a Kotak Securities report. Telenor was the only company to not win any spectrum in the auctions. Reliance Jio - the telecom subsidiary of the Mukesh Ambani-owned Reliance Industries - concentrated on expanding its FD-LTE (4G) spectrum footprint. It can now cater to 20 circles from 16 earlier.
Government mints money
The government comes out the clear winner in the spectrum auctions. The telecom players have to pay the government a sum total of Rs 1.1 lakh crore over a period of two years. This is 35% more than the government expected and the reserve price - the minimum price that can be bid. Rs 29,000 crore has to be paid up front, while the rest can be paid over a period of two years in 10 installments. Idea owes the most - a whopping Rs 30,300 crore, followed by Bharti Airtel - Rs 29,100 crore, and Vodafone - Rs 26,000 crore.
The government may be celebrating, but the telecom companies bleed. The Rs 1.1 lakh-crore payout exceeds almost all analysts' expectations. In the most coveted 900 MHz spectrum, prices jumped to more than two times the reserve price. As a result, companies had to shell out more money.
For example, Bharti's auction payout is about 30% higher than estimates, according to the Kotak report said. This means the companies' costs shoot up. To make up for this rise in costs, they may have to increase tariff hikes. Idea, for example, may have to hike tariff rates by 5 paise per minute to recover its Rs 30,000 crore investment, according to a Business Standard report. An alternative is raising data prices.
Rise in debt
Credit ratings agency Moody's is worried about the rise in debt for companies because of the high cost. "These high prices will cause balance-sheet debt to rise significantly for most operators, including Bharti Airtel and Reliance Communications Limited over the next 24 months,"Moody's said in a report. It will also limit the companies' ability to make additional investments, it said. This will slow down the rollout of 3G/4G networks in India, according to Moody's.
1.3 paisa per minute
The cost of spectrum amounts to a little over Rs 1 lakh crore. This amounts to around 1.3 paise for every minute of a phone call conducted in the country in a year, according to Telecom Secretary Rakesh Garg. The math is simple: Rs 1.1 lakh crore divided by the 20 years of lease totals to Rs 5,300 crore per year. This divided by the average total minutes of calls in India amounts to 1.3 paise or Rs 0.013.