TRAI dangles 5G spectrum auction bait but Indian telcos far from ready

Key Highlights

• TRAI has floated a consultation paper on hosting another spectrum auction and introducing 5G spectrum.
• Telecom industry debt level was estimated to be Rs 4.6 lakh crore as on March 31, 2017.
• Six rounds of spectrum auctions have been held in India so far.

The telecom sector currently has a lot on its plate with ongoing battles with the disruptor – Reliance Jio.  To add to this another spectrum auction this year would mean ‘biting off more than they can chew.’

The Telecom Regulatory Authority of India (TRAI) recently released a consultation paper on a mega auction of spectrum in various bands to be held this year. Among those bands laid the proposal for two new bands of spectrum - 3300-3400 MHz and 3400-3600 MHz. This was the 5G spectrum bait.

But at a time when this industry is lobbying for revision of revenue estimates and pleading to cut interest rates on spectrum payments, can it afford to go on a shopping spree with another spectrum auction?

TRAI has invited opinions on issues like timing of next spectrum auction, quantum of spectrum to be put to auction, reserve prices for the spectrum, block sizes in various bands, and roll-out obligations, with the floating of this spectrum auction consultation paper.
 
However, analysts from ICRA feel that the industry is not ready for another auction this year.

"ICRA is of the opinion that the industry is not prepared for a spectrum auction of such scale at least for one year," the ratings agency said in a report on August 29.

“The industry is undergoing many structural changes which will continue to absorb the bandwidth of the operators for some time. Entry of a new operator led to a bruising price competition amongst the telcos, and a stable pricing regime is still some time away. New pricing plans and products (such as 4G-enabled smartphones) are keeping the industry dynamic. In addition, many important and sizeable merger transactions are under process which will materially alter the industry structure," Harsh Jagnani, Sector Head and Vice President, Corporate Ratings, ICRA Limited said.

Debt

So besides the awaited stability in the pricing regime and the merger transactions that are in the pipeline the telecom industry struggles with a burgeoning debt amounting to an estimated Rs 4.8 lakh crore by the end of FY18.

This was estimated by the ratings agency before the discussion of another spectrum auction.

One of the major reasons for this sizeable debt is the many spectrum auctions. "Spectrum auctions in the past have contributed to sizeable debt on the books of the industry."

"The industry is reeling under high debt level, which coupled with deterioration in financials raises questions on the capability of the industry to participate in the auctions. We expect that most of these issues will take at least a year to settle, till which time the operators will find it difficult to decide on their spectrum strategy. Also the fact that operators hold unutilised spectrum and do not face major expiries till FY2022 alleviate the urgency for auction,” Jagnani added.   

"The annual repayment obligations for the spectrum debt remain high at around Rs 28,000 crore for FY2018 and around Rs 35,000 crore per year from FY2019 to FY2025," ICRA said.

No room for 5G?

Speaking of unutilised spectrum, ICRA said, "As of now, the operators in India hold 4345 MHz of spectrum across six bands. The industry appears adequately stocked with spectrum and would look to commit its resources towards deploying the spectrum already acquired instead of buying more." 

In the mega spectrum auction held a year ago, unsold spectrum amounted to 59% of the total spectrum offered.

Six rounds of spectrum that have been held in India has had leftover spectrum left unsold year on year. ICRA said over the last seven years, the industry has spent a total of Rs 356,137 crore for the acquisition of 3128.5 MHz of spectrum across various bands. 

Last year saw two bands - 700Mhz and 900Mhz spectrum didn't garner any bidders.

However telecom operators have been exploring 5G technology. Airtel in association with Nokia have signed an MoU earlier this year for the setting up of 5G services in India.

However, complete nationwide 4G technology for most operators has not been rolled out yet and is now coming to light with the newcomer cranking the competition up a notch.

"In India, requirement of this spectrum (5G) is some time away, especially when seen in light of the fact that spectrum in the 2300 MHz band, auctioned in 2010 has not been fully deployed," ICRA said. 

Just last week, Vodafone CEO, Vittorio Colao, made a case for lowering interest on spectrum payments. His letter to the Minister of Telecommunication, Manoj Sinha, was in light of a 14 paise interconnection usage charge that is currently under the scanner by TRAI for a another downward revision in rate.

The Department of Telecommunication has also written to the Ministry of Finance to revise the non-tax revenue target of the industry down by 38% to Rs  Rs 29,524 crore in FY18.

"At a time when there are talks to provide some incentives to the industry, which is ailing with pressure on profitability, high repayment burden of elevated debt levels, and high capex requirements, a mega spectrum auction definitely appears counter-intuitive," ICRA added. 

Also Read: How a 14 paise charge per call is redrawing battle lines between Reliance Jio and others