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Telecom tariffs may rise 2-3 paise/min in next few months

Wednesday, 26 February 2014 - 6:00am IST | Place: Mumbai | Agency: dna

Telecom companies are likely to raise tariffs by 2-3 paise per minute in the next few months as they seek to increase revenue per minute metric to recover the huge costs incurred in buying spectrum at a recent auction, experts said.

This is despite the earlier view that spectrum costs would be borne by the operators themselves, given the competition in the sector.

In a note on Tuesday, ratings agency Icra's analysts Sabyasachi Majumdar, Harsh Jagnani, Sachin Sachdeva and Mandeep Singh said, "On apportioning the total spectrum payout over life of spectrum (20 years), the impact on cost per minute of large telcos is likely to range from 0.46 paise per minute to 5.50 paise per minute. Thus, an increase of 2-3 paise on average in terms of tariff hikes by means of headline tariff hikes or removal of freebies and discounts cannot be ruled out."

Bharti, the top player, will have to make an upfront payment of Rs 5,425 crore by March 3, with an annual installment of Rs 2,581 crore starting fiscal 2017. This would result in spectrum cost per minute of 2.83 paise for Bharti, Icra estimates.

For Vodafone, the upfront payout would be Rs 5,582 crore with an annual installment of Rs 2,769 crore, resulting in spectrum cost per minute of 5.50 paise. For Idea, upfront payout would be Rs 3,240 crore and the installment would come to Rs 1,472 crore, resulting in spectrum cost per minute of 2.82 paise.

The cumulative value of spectrum acquired in the auctions stands at Rs 61,163 crore for both 1800 MHz (Rs 37,572 crore) and 900 MHz (Rs 23,589 crore) bands. The government would garner Rs 18,296 crore this fiscal, which is significantly higher than its initial estimates of Rs 11,300 crore, pushing up tariffs.

However, Reliance Jio Infocomm (RJIL), the new entrant which has to pay upfront spectrum cost of Rs 3,648 crore and annual installment of Rs 1,458 crore, may slash tariffs for its subscribers to stay competitive with the incumbents.

RJIL has a better cost advantage over its competitors in terms of lower capex outgo after the auctions due to its infrastructure sharing agreements with Reliance Communications and Bharti Airtel, the analysts said.

For the next 900 MHz spectrum auction, Icra expects no bidders apart from Bharti, Vodafone, Idea and RCom whose licences are coming up for renewal in fiscal 2015. This is because the reserve price may go up 1.8-2.1 times that of the reserve price discovered in the Mumbai, Delhi and Kolkata circles in the just concluded 900 MHz auction. RJIL, which failed to bid in the 900 MHz band in the last auction, may change track in case the reserve price is reduced.

For the 1800 MHz auction, Icra said the reserve price may go up by 10% annually on the base price discovered in the last auction.

"Going forward, spectrum auctions will be a regular feature as many licences are expiring in the next few years. This auction has set the benchmark for future ones, wherein an incumbent would have to participate in order to hold the turf, while the new entrants may look to top up their holdings or get some spectrum in 900 MHz band," they said.

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