The ongoing tussle between the incumbent telecom operators and Telecom Regulatory Authority of India (Trai) could put at risk the fate of upcoming spectrum auctions and the government's revenue projections.
With Trai proposing to review the interconnect charge regime, telecom operators will find it hard to bid for spectrum as they will no longer be able to make revenue projections and bid for spectrum.
Interconnect charges account for Rs 20,000 crore of the industry's revenues and if this revenue stream ceases to exist, then each of the big three — Airtel, Vodafone and Idea — would be impacted to the tune of Rs 5,000 crore. These three firms earn an estimated Rs 15,000 crore from interconnect charges and this adds up to a significant sum over a 20-year licence period. With Trai coming up with the consultation paper 50 days before the auctions, telecom operators will not be able to make projections and commit more resources if their revenues and cash-flows are going to be impacted.
In a note, Bank of America Merrill Lynch says: “Trai has suggested scrapping charges paid to carriers on whose networks calls are received. Such a move, in our view, will impact Bharti/Idea as they are net interconnect gainers and positively benefit smaller telcos and new entrant Jio (net payers).” Interestingly, revenues of the government, too, will be hit by Rs 3,000 crore if interconnect charges are scrapped. Nearly 15 per cent of revenues are paid to the government.
The Department of Telecommunications (DoT) has been burning midnight oil to put more spectrum on the block such that the industry’s key concern of spectrum scarcity can be addressed.
The government is making available 2,354.55 MHz of spectrum in the upcoming auctions and at base prices it would accrue Rs 5.56 lakh crore. Even though large amounts of spectrum has been put on the block, Goldman Sachs expects demand to be muted. Since spectrum in the 700 MHz band is priced at four times the price of spectrum in the 1,800 MHz band, telecom operators are unlikely to bid for spectrum in this band, putting at risk 70 per cent of the government’s estimated spectrum proceeds.
Vodafone and Idea are expected to be key participants in these auctions, as Bharti Airtel has spruced up its spectrum portfolio already.
However, analysts expect Bharti Airtel to spend around $700 million and Idea $500 million to fill their 3G/4G gaps and estimate the total amount raised in the auction to be $3.5 billion for the government.
Sources within the government indicate that the DoT is aware of the situation that has arisen after Trai's consultation paper and that it is expected to take appropriate steps to mitigate the concerns.
Telecom industry's revenues could be impacted by Rs 20,000 crore if interconnect regime is scrapped
Issue of Interconnect charge unlikely to be resolved before spectrum auctions commence on 29 September
Telecom companies claim it is tough to make a business if there is a cloud on revenue stream
- Government may be forced to hold another auction if this one fails to garner revenues